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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 Frequency Electronics (NASDAQ:FEIM). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Frequency Electronics

Frequency Electronics' Improving Profits

Frequency Electronics 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, Frequency Electronics' EPS grew from US$0.30 to US$0.82, over the previous 12 months. It's a rarity to see 176% year-on-year growth like that.

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 Frequency Electronics shareholders is that EBIT margins have grown from 7.5% to 12% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

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.

Since Frequency Electronics is no giant, with a market capitalisation of US$165m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Frequency Electronics Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's nice to see that there have been no reports of any insiders selling shares in Frequency Electronics in the previous 12 months. With that in mind, it's heartening that Russell Sarachek, the Independent Director of the company, paid US$28k for shares at around US$9.57 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.

Recent insider purchases of Frequency Electronics stock is not the only way management has kept the interests of the general public shareholders in mind. Namely, Frequency Electronics has a very reasonable level of CEO pay. For companies with market capitalisations between US$100m and US$400m, like Frequency Electronics, the median CEO pay is around US$1.4m.

Frequency Electronics' CEO took home a total compensation package worth US$821k in the year leading up to April 2024. That comes in below the average for similar sized companies and seems pretty reasonable. 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 a culture of integrity, in a broader sense.

Does Frequency Electronics Deserve A Spot On Your Watchlist?

Frequency Electronics' earnings have taken off in quite an impressive fashion. The company can also boast of insider buying, and reasonable remuneration for the CEO. The strong EPS growth suggests Frequency Electronics may be at an inflection point. For those attracted to fast growth, we'd suggest this stock merits monitoring. Now, you could try to make up your mind on Frequency Electronics by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

The good news is that Frequency Electronics 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.