Simply Wall Street 25th June 2020 Here’s Why I Think Electro...

Simply Wall Street 25th June 2020

Here’s Why I Think Electro Optic Systems Holdings (ASX:EOS) Is An Interesting Stock


In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Electro Optic Systems Holdings (ASX:EOS). While profit is not necessarily a social good, it’s easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Electro Optic Systems Holdings’s Improving Profits
Over the last three years, Electro Optic Systems Holdings has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don’t think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Electro Optic Systems Holdings boosted its trailing twelve month EPS from AU$0.17 to AU$0.20, in the last year. That’s a 14% gain; respectable growth in the broader scheme of things.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Electro Optic Systems Holdings shareholders can take confidence from the fact that EBIT margins are up from 8.5% to 13%, and revenue is growing. That’s great to see, on both counts.


Are Electro Optic Systems Holdings Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Electro Optic Systems Holdings insiders have a significant amount of capital invested in the stock. Given insiders own a small fortune of shares, currently valued at AU$145m, they have plenty of motivation to push the business to succeed. That holding amounts to 14% of the stock on issue, thus making insiders influential, and aligned, owners of the business.
Does Electro Optic Systems Holdings Deserve A Spot On Your Watchlist?
As I already mentioned, Electro Optic Systems Holdings is a growing business, which is what I like to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye

View Data


PB vs Industry: EOS is good value based on its PB Ratio (2.5x) compared to the AU Aerospace & Defense industry average

Earnings vs Savings Rate: EOS's forecast earnings growth (25.8% per year) is above the savings rate (2.3%).


Earnings vs Market: EOS's earnings (25.8% per year) are forecast to grow faster than the Australian market (14.6% per year).


High Growth Earnings: earnings are expected to grow significantly over the next 3 years.


Revenue vs Market: EOS's revenue (22.2% per year) is forecast to grow faster than the Australian market (4.1% per year).


High Growth Revenue: EOS's revenue (22.2% per year) is forecast to grow faster than 20% per year.

(25.8%
Forecasted annual earnings growth)

Undervalued Below Fair Value: EOS (A$4.99) is trading below our estimate of fair value (A$6.38)


Significantly Below Fair Value: EOS is trading below fair value by more than  25%