November 27, 2021

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Remarkable business & finance

Does Ludan Engineering (TLV:LUDN) Deserve A Spot On Your Watchlist?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Warren Buffett has mused, ‘If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.’ When they buy such story stocks, investors are all too often the patsy.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Ludan Engineering (TLV:LUDN). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Ludan Engineering

How Fast Is Ludan Engineering Growing?

If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. I, for one, am blown away by the fact that Ludan Engineering has grown EPS by 44% per year, over the last three years. While that sort of growth rate isn’t sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

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. Ludan Engineering’s EBIT margins have actually improved by 2.1 percentage points in the last year, to reach 5.9%, but, on the flip side, revenue was down 6.7%. That’s not ideal.

You can take a look at the company’s revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

TASE:LUDN Earnings and Revenue History November 10th 2021

Since Ludan Engineering is no giant, with a market capitalization of ₪192m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Ludan Engineering 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 Ludan Engineering insiders have a significant amount of capital invested in the stock. To be specific, they have ₪51m worth of shares. That’s a lot of money, and no small incentive to work hard. Those holdings account for over 27% of the company; visible skin in the game.

Does Ludan Engineering Deserve A Spot On Your Watchlist?

Ludan Engineering’s earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind Ludan Engineering is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Don’t forget that there may still be risks. For instance, we’ve identified 4 warning signs for Ludan Engineering that you should be aware of.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

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

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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