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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Eagers Automotive (ASX:APE). 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.
Eagers Automotive's Earnings Per Share Are Growing
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Eagers Automotive has grown EPS by 36% 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.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While revenue is looking a bit flat, the good news is EBIT margins improved by 2.4 percentage points to 5.6%, in the last twelve months. Which is a great look for the company.
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.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Eagers Automotive's future profits.
Are Eagers Automotive 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Shareholders in Eagers Automotive will be more than happy to see insiders committing themselves to the company, spending AU$473k on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that there are brighter days ahead. It is also worth noting that it was Non-Executive Director Nicholas Politis who made the biggest single purchase, worth AU$278k, paying AU$14.03 per share.
On top of the insider buying, it's good to see that Eagers Automotive insiders have a valuable investment in the business. We note that their impressive stake in the company is worth AU$246m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!
Is Eagers Automotive Worth Keeping An Eye On?
If you believe that share price follows earnings per share you should definitely be delving further into Eagers Automotive's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. Astute investors will want to keep this stock on watch. You should always think about risks though. Case in point, we've spotted 4 warning signs for Eagers Automotive you should be aware of, and 1 of them makes us a bit uncomfortable.
Keen growth investors love to see insider buying. Thankfully, Eagers Automotive isn't the only one. You can see a a free list of them here.
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.