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. 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.
In contrast to all that, many investors prefer to focus on companies like Australian United Investment (ASX:AUI), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
How Fast Is Australian United Investment Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Australian United Investment managed to grow EPS by 8.6% per year, over three years. That's a pretty good rate, if the company can sustain it.
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. Our analysis has highlighted that Australian United Investment's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. While we note Australian United Investment achieved similar EBIT margins to last year, revenue grew by a solid 69% to AU$78m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Australian United Investment's balance sheet strength, before getting too excited.
Are Australian United Investment 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.
The good news for Australian United Investment shareholders is that no insiders reported selling shares in the last year. Add in the fact that Wayne Kent, the Non-Executive Director of the company, paid AU$46k for shares at around AU$9.29 each. It seems that at least one insider is prepared to show the market there is potential within Australian United Investment.
The good news, alongside the insider buying, for Australian United Investment bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have AU$35m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 2.8% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Does Australian United Investment Deserve A Spot On Your Watchlist?
One positive for Australian United Investment is that it is growing EPS. That's nice to see. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. 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 Australian United Investment is trading on a high P/E or a low P/E, relative to its industry.
The good news is that Australian United Investment is not the only growth stock with insider buying. Here's a list of them... 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.
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.
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