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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Maggie Beer Holdings (ASX:MBH). 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.
Maggie Beer Holdings' Improving Profits
In the last three years Maggie Beer Holdings' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Outstandingly, Maggie Beer Holdings' EPS shot from AU$0.012 to AU$0.021, over the last year. It's not often a company can achieve year-on-year growth of 72%. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.
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. It's noted that, last year, Maggie Beer Holdings' revenue from operations was lower than its revenue, so that could distort our analysis of its margins. The good news is that Maggie Beer Holdings is growing revenues, and EBIT margins improved by 10.4 percentage points to 8.5%, 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. For finer detail, click on the image.
Maggie Beer Holdings isn't a huge company, given its market capitalisation of AU$107m. That makes it extra important to check on its balance sheet strength.
Are Maggie Beer Holdings 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. 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.
Despite AU$50k worth of sales, Maggie Beer Holdings insiders have overwhelmingly been buying the stock, spending AU$578k on purchases in the last twelve months. An optimistic sign for those with Maggie Beer Holdings in their watchlist. It is also worth noting that it was Non-Executive Director Maggie Beer who made the biggest single purchase, worth AU$180k, paying AU$0.45 per share.
Along with the insider buying, another encouraging sign for Maggie Beer Holdings is that insiders, as a group, have a considerable shareholding. Indeed, they hold AU$36m worth of its stock. This considerable investment should help drive long-term value in the business. As a percentage, this totals to 33% of the shares on issue for the business, an appreciable amount considering the market cap.
Is Maggie Beer Holdings Worth Keeping An Eye On?
Maggie Beer Holdings' earnings have taken off in quite an impressive fashion. 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. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Maggie Beer Holdings belongs near the top of your watchlist. You still need to take note of risks, for example - Maggie Beer Holdings has 1 warning sign we think you should be aware of.
The good news is that Maggie Beer Holdings 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.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here