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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
So if you're like me, you might be more interested in profitable, growing companies, like Ashley Services Group (ASX:ASH). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Ashley Services Group's Earnings Per Share Are Growing.
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Ashley Services Group has managed to grow EPS by 24% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Ashley Services Group maintained stable EBIT margins over the last year, all while growing revenue 14% to AU$384m. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.
Since Ashley Services Group is no giant, with a market capitalization of AU$81m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Ashley Services Group Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
The good news for Ashley Services Group shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that Christopher McFadden, the CFO, Joint Company Secretary & Executive Director of the company, paid AU$22k for shares at around AU$0.32 each.
On top of the insider buying, we can also see that Ashley Services Group insiders own a large chunk of the company. Indeed, with a collective holding of 60%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. With that sort of holding, insiders have about AU$49m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!
Should You Add Ashley Services Group To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Ashley Services Group's strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. So I do think this is one stock worth watching. We should say that we've discovered 3 warning signs for Ashley Services Group (1 shouldn't be ignored!) that you should be aware of before investing here.
As a growth investor I do like to see insider buying. But Ashley Services Group 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.
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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