With EPS Growth And More, Sono-Tek (NASDAQ:SOTK) Makes An Interesting Case
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Sono-Tek (NASDAQ:SOTK). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
How Fast Is Sono-Tek Growing Its Earnings Per Share?
Sono-Tek has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Sono-Tek's EPS shot up from US$0.091 to US$0.13; a result that's bound to keep shareholders happy. That's a impressive gain of 45%.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Sono-Tek shareholders can take confidence from the fact that EBIT margins are up from 6.1% to 10%, and revenue is growing. That's great to see, on both counts.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
View our latest analysis for Sono-Tek
Fortunately, we've got access to analyst forecasts of Sono-Tek's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Sono-Tek Insiders Aligned With All Shareholders?
It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. So it is good to see that Sono-Tek insiders have a significant amount of capital invested in the stock. To be specific, they have US$15m worth of shares. This considerable investment should help drive long-term value in the business. Those holdings account for over 16% of the company; visible skin in the game.
While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations under US$200m, like Sono-Tek, the median CEO pay is around US$657k.
Sono-Tek offered total compensation worth US$408k to its CEO in the year to February 2026. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Is Sono-Tek Worth Keeping An Eye On?
You can't deny that Sono-Tek has grown its earnings per share at a very impressive rate. That's attractive. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. The overarching message here is that Sono-Tek has underlying strengths that make it worth a look at. Even so, be aware that Sono-Tek is showing 2 warning signs in our investment analysis , you should know about...
Although Sono-Tek certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of companies that not only boast of strong growth but have strong insider backing.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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.