For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Aquila Services Group (LON:AQSG). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Aquila Services Group with the means to add long-term value to shareholders.
Check out our latest analysis for Aquila Services Group
Aquila Services Group's Improving Profits
Even when EPS earnings per share (EPS) growth is unexceptional, company value can be created if this rate is sustained each year. So it's easy to see why many investors focus in on EPS growth. In impressive fashion, Aquila Services Group's EPS grew from UK£0.0065 to UK£0.014, over the previous 12 months. It's not often a company can achieve year-on-year growth of 122%.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. EBIT margins for Aquila Services Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 24% to UK£11m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Aquila Services Group isn't a huge company, given its market capitalisation of UK£10m. That makes it extra important to check on its balance sheet strength.
Are Aquila Services Group Insiders Aligned With All Shareholders?
Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So as you can imagine, the fact that Aquila Services Group insiders own a significant number of shares certainly is appealing. To be exact, company insiders hold 72% of the company, so their decisions have a significant impact on their investments. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Valued at only UK£10m Aquila Services Group is really small for a listed company. So this large proportion of shares owned by insiders only amounts to UK£7.5m. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.