We Ran A Stock Scan For Earnings Growth And Pengana Capital Group (ASX:PCG) Passed With Ease
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.' 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.
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 Pengana Capital Group (ASX:PCG). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
See our latest analysis for Pengana Capital Group
Pengana Capital Group's Improving Profits
Pengana Capital Group 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. In impressive fashion, Pengana Capital Group's EPS grew from AU$0.10 to AU$0.22, over the previous 12 months. It's not often a company can achieve year-on-year growth of 111%.
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. Not all of Pengana Capital Group's revenue last year was 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 music to the ears of Pengana Capital Group shareholders is that EBIT margins have grown from 22% to 36% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Pengana Capital Group isn't a huge company, given its market capitalisation of AU$147m. That makes it extra important to check on its balance sheet strength.
Are Pengana Capital Group 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
In the last year insider at Pengana Capital Group were both selling and buying shares; but happily, as a group they spent AU$218k more on stock, than they netted from selling it. On balance, that's a good sign. Zooming in, we can see that the biggest insider purchase was by Non-Executive Chairman Warwick Negus for AU$2.5m worth of shares, at about AU$1.70 per share.
Along with the insider buying, another encouraging sign for Pengana Capital Group is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at AU$44m. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 30% of the company; visible skin in the game.
Should You Add Pengana Capital Group To Your Watchlist?
Pengana Capital Group's earnings per share growth have been climbing higher at an appreciable rate. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Pengana Capital Group deserves timely attention. You should always think about risks though. Case in point, we've spotted 1 warning sign for Pengana Capital 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 Pengana Capital 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.
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