Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Aehr Test Systems (NASDAQ:AEHR). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Aehr Test Systems

How Fast Is Aehr Test Systems Growing Its Earnings Per Share?

Aehr Test Systems 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. In impressive fashion, Aehr Test Systems' EPS grew from US$0.52 to US$1.12, over the previous 12 months. Year on year growth of 114% is certainly a sight to behold.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While Aehr Test Systems' EBIT margins are down, it's not all bad news as revenues are at least stable. Shareholders will be hopeful that the company can buck this trend.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Aehr Test Systems' future EPS 100% free.

Are Aehr Test Systems Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

In the last year insider at Aehr Test Systems were both selling and buying shares; but happily, as a group they spent US$84k more on stock, than they netted from selling it. On balance, that's a good sign. We also note that it was the Independent Director, Howard Slayen, who made the biggest single acquisition, paying US$310k for shares at about US$15.50 each.

On top of the insider buying, it's good to see that Aehr Test Systems insiders have a valuable investment in the business. Indeed, they hold US$22m worth of its stock. That's a lot of money, and no small incentive to work hard. As a percentage, this totals to 5.5% of the shares on issue for the business, an appreciable amount considering the market cap.

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, Gayn Erickson, is paid less than the median for similar sized companies. For companies with market capitalisations between US$200m and US$800m, like Aehr Test Systems, the median CEO pay is around US$2.4m.

The Aehr Test Systems CEO received US$1.7m in compensation for the year ending May 2023. That is actually below the median for CEO's of similarly sized companies. 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. It can also be a sign of good governance, more generally.

Is Aehr Test Systems Worth Keeping An Eye On?

Aehr Test Systems' earnings per share growth have been climbing higher at an appreciable rate. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Aehr Test Systems deserves timely attention. Even so, be aware that Aehr Test Systems is showing 3 warning signs in our investment analysis , and 2 of those are potentially serious...

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Aehr Test Systems, you'll probably love this curated collection of companies in the US that have an attractive valuation alongside insider buying in the last three months.

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.