I made a list of growing companies, and Sonos (NASDAQ:SONO) nailed it

Like a puppy chasing its tail, some new investors often chase “the next big thing,” even if that means buying “story stocks” with no revenue, let alone profit. Unfortunately, high-risk investments often have little chance of ever paying off, and many investors pay a price to learn their lesson.

On the other hand, if you like companies that have income and even make profits, then you might be interested sonos (NASDAQ:SONO). Well, I’m not saying the stock is necessarily undervalued today; but I can’t shake the appreciation for the profitability of the business itself. Loss-making companies are always racing against time to achieve financial sustainability, but time is often a friend of profitable companies, especially when they are growing.

Check out our latest analysis for Sonos

Improving Sonos’ profits

For the past three years, Sonos has grown earnings per share (EPS) like young bamboo after rain; quickly and from a low base. So I don’t think the percentage growth rate is particularly meaningful. So instead, I’m focusing on growth over the last year. Sonos increased its trailing 12-month EPS from $0.96 to $1.10 over the past year. That’s a 15% gain; respectable growth in a broader sense.

One way to check a company’s growth is to look at how its earnings and profit margins before interest and taxes (EBIT) are changing. While we can see that Sonos’ EBIT margins have been flat over the past year, revenue has grown a solid 15% to $1.8 billion. That’s progress.

In the chart below, you can see how the company has increased revenue and earnings over time. Click on the chart to see the exact numbers.

earnings-and-sales history

You don’t drive your eyes to the rearview mirror, so maybe that interests you more free Analyst forecast report for Sonos future profits.

Are Sonos Insiders Agreed With All Shareholders?

I like it when business leaders have a stake, so to speak, because it improves the alignment of incentives between the people running the business and its true owners. So it’s good to see that Sonos insiders have invested a significant amount of capital in the stock. In fact, they hold $37 million worth of stock. That’s a lot of money and no small incentive to work hard. Though it accounts for just 1.3% of the company, the value of this investment is enough to show insiders there’s a lot at stake.

It’s good to see insiders invested in the company, but are the compensation levels reasonable? Well, based on the CEO’s salary, I’d say they actually are. For companies with a market cap between $2.0 billion and $6.4 billion, like Sonos, the average CEO salary is around $6.6 million.

Sonos offered its CEO $5.5 million in total compensation in year to. That seems pretty reasonable, especially given that it’s below the median for companies of a similar size. While the level of CEO pay isn’t a big factor for the company in my opinion, modest pay is positive as it suggests the board is keeping shareholder interests in mind. I would also argue that a reasonable salary level generally confirms good decision-making.

Is it worth keeping an eye on Sonos?

As I mentioned earlier, Sonos is a growing company, which I’m happy to see. The fact that EPS is growing is a real plus for Sonos, but the beautiful picture gets even better. With modest CEO pay and significant insider ownership, I’d argue that this company at least deserves a watch list. What about risks? Every company has them and we discovered them 2 warning signs for Sonos you should know.

Of course, a good way to do that (sometimes) is to buy stocks are not increasing income and do not Let insiders buy shares. But as a growth investor, I always enjoy looking at it do have these properties. You can access it a free list of them here.

Please note that the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Do you have any feedback about this article? Concerned about the content? Get in touch directly with us. Alternatively, send an email to the editorial team (at) simplywallst.com.

This Simply Wall St article is of a general nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

About Paige McCarthy

Check Also

Skolem Technologies, a Valour venture portfolio company, raises $20 million in Series A round

Skolem Technologies increased 20 million dollars to enable institutional access to DeFi Investors in Skolem’s …