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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.
In contrast to all that, many investors prefer to focus on companies like Eureka Group Holdings (ASX:EGH), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Eureka Group Holdings with the means to add long-term value to shareholders.
Check out our latest analysis for Eureka Group Holdings
How Fast Is Eureka Group Holdings Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Eureka Group Holdings has grown EPS by 31% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
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. Eureka Group Holdings maintained stable EBIT margins over the last year, all while growing revenue 21% to AU$39m. That's progress.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Eureka Group Holdings isn't a huge company, given its market capitalisation of AU$160m. That makes it extra important to check on its balance sheet strength.
Are Eureka Group Holdings Insiders Aligned With All Shareholders?
It's a good habit to check into a company's remuneration policies to ensure that the CEO and management team aren't putting their own interests before that of the shareholder with excessive salary packages. The median total compensation for CEOs of companies similar in size to Eureka Group Holdings, with market caps under AU$303m is around AU$443k.
The Eureka Group Holdings CEO received AU$348k in compensation for the year ending June 2023. That is actually below the median for CEO's of similarly sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.