The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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.

In contrast to all that, many investors prefer to focus on companies like Lancaster Colony (NASDAQ:LANC), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Lancaster Colony with the means to add long-term value to shareholders.

See our latest analysis for Lancaster Colony

Lancaster Colony's Improving Profits

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Lancaster Colony's EPS shot up from US$4.04 to US$5.75; a result that's bound to keep shareholders happy. That's a impressive gain of 42%.

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. The music to the ears of Lancaster Colony shareholders is that EBIT margins have grown from 9.1% to 12% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

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 Lancaster Colony's future EPS 100% free.

Are Lancaster Colony 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

While Lancaster Colony insiders did net US$233k selling stock over the last year, they invested US$522k, a much higher figure. This overall confidence in the company at current the valuation signals their optimism. We also note that it was the Independent Director, Elliot Fullen, who made the biggest single acquisition, paying US$507k for shares at about US$169 each.

On top of the insider buying, it's good to see that Lancaster Colony insiders have a valuable investment in the business. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$1.3b. Coming in at 26% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because Lancaster Colony's CEO, Dave Ciesinski, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Lancaster Colony with market caps between US$4.0b and US$12b is about US$8.1m.

Lancaster Colony's CEO took home a total compensation package worth US$5.0m in the year leading up to June 2023. That is actually below the median for CEO's of similarly 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Lancaster Colony Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Lancaster Colony's strong EPS growth. Furthermore, company insiders have been adding to their significant stake in the company. Astute investors will want to keep this stock on watch. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Lancaster Colony is trading on a high P/E or a low P/E, relative to its industry.

The good news is that Lancaster Colony is not the only stock with insider buying. Here's a list of small cap, undervalued companies in the US 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.

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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.