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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 completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Barrack St Investments (ASX:BST). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
View our latest analysis for Barrack St Investments
How Quickly Is Barrack St Investments Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. Impressively, Barrack St Investments has grown EPS by 19% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Barrack St Investments shareholders can take confidence from the fact that EBIT margins are up from -827% to -68%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Since Barrack St Investments is no giant, with a market capitalization of AU$17m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Barrack St Investments Insiders Aligned With All Shareholders?
Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So as you can imagine, the fact that Barrack St Investments insiders own a significant number of shares certainly appeals to me. In fact, they own 43% of the shares, making insiders a very influential shareholder group. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. Of course, Barrack St Investments is a very small company, with a market cap of only AU$17m. So despite a large proportional holding, insiders only have AU$7.4m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.