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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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
In contrast to all that, many investors prefer to focus on companies like Auto Trader Group (LON:AUTO), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
We check all companies for important risks. See what we found for Auto Trader Group in our free report.
How Fast Is Auto Trader Group Growing?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Auto Trader Group grew its EPS by 16% per year. That's a pretty good rate, if the company can sustain it.
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. The good news is that Auto Trader Group is growing revenues, and EBIT margins improved by 2.5 percentage points to 64%, over the last year. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Check out our latest analysis for Auto Trader Group
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Auto Trader Group's forecast profits?
Are Auto Trader Group Insiders Aligned With All Shareholders?
Since Auto Trader Group has a market capitalisation of UK£7.6b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Indeed, they hold UK£31m worth of its stock. This considerable investment should help drive long-term value in the business. Despite being just 0.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Auto Trader Group, with market caps over UK£6.0b, is around UK£4.9m.