It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Zenith Minerals (ASX:ZNC). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
How Fast Is Zenith Minerals Growing Its Earnings Per Share?
Zenith Minerals 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. So it would be better to isolate the growth rate over the last year for our analysis. To the delight of shareholders, Zenith Minerals' EPS soared from AU$0.0027 to AU$0.0042, over the last year. That's a impressive gain of 56%.
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. Not all of Zenith Minerals' revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. The good news is that Zenith Minerals is growing revenues, and EBIT margins improved by 853.1 percentage points to 44%, over the last year. Ticking those two boxes is a good sign of growth, in our book.
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.
Zenith Minerals isn't a huge company, given its market capitalisation of AU$97m. That makes it extra important to check on its balance sheet strength.
Are Zenith Minerals Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
With strong conviction, Zenith Minerals insiders have stood united by refusing to sell shares over the last year. But the real excitement comes from the AU$115k that Executive Chairman David Ledger spent buying shares (at an average price of about AU$0.33). It seems at least one insider has seen potential in the company's future - and they're willing to put money on the line.
Should You Add Zenith Minerals To Your Watchlist?
For growth investors, Zenith Minerals' raw rate of earnings growth is a beacon in the night. Growth in EPS isn't the only striking feature with company insiders adding to their holdings being another noteworthy vote of confidence for the company. In essence, your time will not be wasted checking out Zenith Minerals in more detail. What about risks? Every company has them, and we've spotted 5 warning signs for Zenith Minerals (of which 1 shouldn't be ignored!) you should know about.
The good news is that Zenith Minerals 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.
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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.
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