With EPS Growth And More, Vidrala (BME:VID) Is Interesting

Simply Wall St

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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Vidrala (BME:VID). While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Vidrala

How Quickly Is Vidrala Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Vidrala has managed to grow EPS by 24% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Vidrala's EBIT margins were flat over the last year, revenue grew by a solid 17% to €967m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

BME:VID Income Statement, June 12th 2019

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Vidrala's forecast profits?

Are Vidrala Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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.

Vidrala top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the External Independent Director, Eduardo Zavala de la Torre, paid €76k to buy shares at an average price of €73.71.

On top of the insider buying, it's good to see that Vidrala insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at €321m. Coming in at 15% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

Is Vidrala Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Vidrala's strong EPS growth. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So it's fair to say I think this stock may well deserve a spot on your watchlist. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Vidrala.

As a growth investor I do like to see insider buying. But Vidrala 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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.