Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
So if you're like me, you might be more interested in profitable, growing companies, like Alumasc Group (LON:ALU). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Alumasc Group's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. I, for one, am blown away by the fact that Alumasc Group has grown EPS by 60% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Alumasc Group shareholders can take confidence from the fact that EBIT margins are up from 8.0% to 11%, and revenue is growing. 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.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Alumasc Group.
Are Alumasc Group Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.
In the last year insider at Alumasc Group were both selling and buying shares; but happily, as a group they spent UK£84k more on stock, than they netted from selling it. Although I don't particularly like to see selling, the fact that they put more capital in, than they extracted, is a positive in my mind. Zooming in, we can see that the biggest insider purchase was by CEO & Executive Director G. Hooper for UK£34k worth of shares, at about UK£2.58 per share.
The good news, alongside the insider buying, for Alumasc Group bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have UK£14m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 23% of the company; visible skin in the game.
Does Alumasc Group Deserve A Spot On Your Watchlist?
Alumasc Group's earnings per share have taken off like a rocket aimed right at the moon. 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 Alumasc Group deserves timely attention. You should always think about risks though. Case in point, we've spotted 3 warning signs for Alumasc Group you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Alumasc Group, you'll probably love this free list of growing companies that insiders are buying.
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.