Does Standard Motor Products (NYSE:SMP) 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 currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Standard Motor Products (NYSE:SMP). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Standard Motor Products

How Fast Is Standard Motor Products Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Standard Motor Products has managed to grow EPS by 18% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

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. Standard Motor Products maintained stable EBIT margins over the last year, all while growing revenue 17% to US$1.3b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Standard Motor Products?

Are Standard Motor Products Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Insider selling of Standard Motor Products shares was insignificant compared to the one buyer, over the last twelve months. Specifically the Chairman of the Board, Lawrence Sills, spent US$1.2m, paying about US$41.96 per share. That can definitely be seen as a sign of conviction.

On top of the insider buying, it's good to see that Standard Motor Products insiders have a valuable investment in the business. Given insiders own a significant chunk of shares, currently valued at US$96m, they have plenty of motivation to push the business to succeed. At 9.7% of the company, the co-investment by insiders fosters confidence that management will make long-term focussed decisions.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because on our analysis the CEO, Eric Sills, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Standard Motor Products with market caps between US$400m and US$1.6b is about US$4.1m.

Standard Motor Products' CEO took home a total compensation package of US$1.7m in the year prior to December 2021. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Standard Motor Products To Your Watchlist?

For growth investors, Standard Motor Products' raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant piece of the pie when it comes to the company's stock, and one has been buying more. Astute investors will want to keep this stock on watch. What about risks? Every company has them, and we've spotted 1 warning sign for Standard Motor Products you should know about.

The good news is that Standard Motor Products is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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