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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 Semler Scientific (NASDAQ:SMLR). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Semler Scientific with the means to add long-term value to shareholders.

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Semler Scientific's Earnings Per Share Are 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. Impressively, Semler Scientific has grown EPS by 19% per year, compound, in the last three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. Despite consistency in EBIT margins year on year, Semler Scientific has actually recorded a dip in revenue. Suffice it to say that is not a great sign of growth.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

View our latest analysis for Semler Scientific

Since Semler Scientific is no giant, with a market capitalisation of US$286m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Semler Scientific 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Even though there was some insider selling over the last year, that was outweighed by Independent Chairman of the board Eric Semler's huge outlay of US$1.9m, spent buying shares. The average price of which was US$37.93 per share. Insider buying like this is a rare occurrence and should stoke the interest of the market and shareholders alike.

On top of the insider buying, it's good to see that Semler Scientific insiders have a valuable investment in the business. Holding US$53m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. At 18% 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 Semler Scientific's CEO, Doug Murphy-Chutorian, is paid at a relatively modest level when compared to other CEOs for companies of this size. For companies with market capitalisations between US$100m and US$400m, like Semler Scientific, the median CEO pay is around US$1.6m.

The Semler Scientific CEO received US$1.1m in compensation for the year ending December 2024. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Semler Scientific Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Semler Scientific's strong EPS growth. 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. So it's fair to say that this stock may well deserve a spot on your watchlist. It is worth noting though that we have found 2 warning signs for Semler Scientific (1 shouldn't be ignored!) that you need to take into consideration.

Keen growth investors love to see insider activity. Thankfully, Semler Scientific isn't the only one. You can see a a curated list of companies which have exhibited consistent growth accompanied by high insider ownership.

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.