Here’s why I think Evolution (STO: EVO) might be worth your attention today.


Like a puppy chasing its tail, some new investors often chase “the next big thing,” even if that means buying “history stocks” with no income, let alone profit. But as Peter Lynch put it in One Up on Wall Street, ‘Long shots hardly ever pay off.’

Contrary to all this, I prefer to spend time on companies like Evolution (STO: EVO), which not only has income, but also profits. Now, I’m not saying the title is necessarily undervalued today; but I cannot shake an appreciation of the profitability of the company itself. Conversely, a loss-making company has yet to prove itself with profit, and eventually the sweet milk of external capital can turn sour.

See our latest review for Evolution

Evolution improves profits

Over the past three years, Evolution’s earnings per share have taken off like a rocket; fast, and from a low base. So the actual growth rate doesn’t tell us much. As a result, I’ll zoom in on last year’s growth instead. Like the last New Year’s Eve fireworks speeding through the sky, Evolution’s EPS has gone from € 1.38 to € 2.39, over the past year. You don’t see 73% year-over-year growth like that, very often. This could be a sign that the business has reached a real inflection point.

A close look at growth in income and profit margins before interest and taxes (EBIT) can help inform a vision on the sustainability of recent earnings growth. The good news is that Evolution is increasing revenue and EBIT margins have improved 4.8 percentage points to 59% over the past year. Checking those two boxes is a good sign of growth in my book.

In the graph below, you can see how the business has increased its profit and revenue over time. For more details, click on the image.

OM Revenue and Revenue History: EVO December 19, 2021

Fortunately, we have access to the forecasts of Evolution analysts. future profits. You can make your own predictions without looking, or you can take a look at what the pros are predicting.

Are Evolution insiders aligned with all shareholders?

Like that fresh smell in the air when the rains come, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal an uptrend on behalf of the buyer. Small purchases aren’t always indicative of conviction, however, and insiders don’t always make the right choices.

Note that last year, insiders sold – € 7.0 million in shares. But that’s far less than the 27 million euros spent by insiders to buy stocks. This makes me even more interested in Evolution because it suggests that those who understand the business best are optimistic. We also note that it was the group’s chief executive, Martin Carlesund, who made the largest acquisition, paying 25 million kroner for shares of around 1,406 kroner each.

The good news, aside from insider buying, for Evolution bulls is that insiders (collectively) have a significant investment in the stock. In particular, they hold a huge stake in the company, worth 17 billion euros. I would find that kind of skin in the game quite encouraging, if I owned any stock, as it would ensure that the executives of the company would also experience my success, or failure, with the action.

While insiders already own a significant number of shares and buy more of them, the good news for common shareholders does not end there. The icing on the cake is that CEO Martin Carlesund is paid relatively modestly to CEOs of companies of similar size. I’ve found that the median total compensation for CEOs of companies like Evolution, with market caps above $ 7.1 billion, is around $ 2.0 million.

The CEO of Evolution received € 1.8 million in compensation for the financial year ended. This is lower than the average for similar sized companies and seems pretty reasonable to me. CEO compensation levels aren’t the most important metric for investors, but when the salary is modest, it promotes better alignment between the CEO and common shareholders. It can also be a sign of a culture of integrity, in the broad sense.

Should you add Evolution to your watchlist?

Evolution’s revenue took off like any random cryptocurrency, in 2017. Equally encouraging; insiders own and buy more shares. Due to the potential to have reached an inflection point, I would suggest that Evolution belongs to the High off your watch list. However, before you get too excited, we found out 1 warning sign for evolution that you need to be aware of.

As a growth investor, I like to see insider buying. But Evolution is not the only one. You can see a free list here.

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

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


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