Here’s why we think hostess brands (NASDAQ: TWNK) are worth watching

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Investors are often driven by the idea of ​​discovering “the next big thing”, even if that means buying “historic stocks” without any income, let alone profit. But the reality is that when a company loses money every year, for long enough, its investors will usually take their share of those losses. A loss-making company has not yet proven itself with profits, and eventually the inflow of external capital may dry up.

If this type of business isn’t your style, and you like businesses that generate revenue or even profit, then you might be interested in Hostess Marks (NASDAQ: TWNK). Even if this company is correctly valued by the market, investors would agree that generating consistent earnings will continue to provide Hostess Brands with the means to add long-term shareholder value.

Check out our latest analysis for hostess brands

Earnings per share for hostess brands rise

If a company can keep increasing its earnings per share (EPS) long enough, its stock price should eventually follow. This means EPS growth is seen as a real benefit by most successful long-term investors. It’s certainly nice to see that Hostess Brands was able to grow EPS by 22% annually over three years. Generally, we would say that if a company can follow this kind of growth, shareholders will be radiant.

A careful look at revenue growth and earnings before interest and tax (EBIT) margins can help inform a view on the sustainability of recent earnings growth. On the one hand, Hotess Brands’ EBIT margins have fallen over the past year, but on the other hand, revenues have increased. So it looks like the future may contain further growth, especially if EBIT margins can stay stable.

In the table below, you can see how the company has increased its profits and revenue over time. For more details, click on the image.

NasdaqCM: TWNK Earnings and Revenue History as of October 1, 2022

Luckily, we have access to analyst forecasts from Hostess Brands coming profits. You can make your own predictions without looking, or you can take a peek at what the pros are predicting.

Are Hostess Brands insiders aligned with all shareholders?

It’s nice to see business leaders putting their money on the line, so to speak, because it increases the alignment of incentives between the people running the business and its true owners. So it’s good to see that Hostess Brands insiders have a lot of capital invested in the stock. To be precise, they own $14 million worth of stock. That’s a lot of money, and no small incentive to work hard. Although their stake is only 0.5%, it is still a considerable amount at stake to encourage the company to maintain a strategy that will bring value to shareholders.

It’s good to see that insiders are invested in the company, but are the compensation levels reasonable? A brief analysis of CEO compensation suggests they are. For companies with a market capitalization between $2.0 billion and $6.4 billion, such as Hostess Brands, the median CEO salary is around $6.9 million.

Hostess Brands offered total compensation worth US$5.4 million to its CEO in the year to December 2021. That’s actually below the median for CEOs of size companies. similar. CEO pay levels aren’t the most important metric for investors, but when the salary is modest, it promotes better alignment between the CEO and ordinary shareholders. Generally, it can be argued that reasonable compensation levels attest to good decision-making.

Do hostess brands deserve a spot on your watch list?

You can’t deny that Hostess Brands has been growing its earnings per share at a very impressive rate. It’s attractive. If you need more conviction beyond that EPS growth rate, don’t forget reasonable compensation and high insider participation. This may just be a quick overview, but the bottom line is that Hostess Brands is worth watching. However, you should always think about the risks. Concrete example, we spotted 2 warning signs for hostess marks you should know, and one of them makes us a little uneasy.

The beauty of investing is that you can invest in almost any business you want. But if you’d rather focus on stocks that have been insider buying, here’s a list of companies that have been insider buying over the past three months.

Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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