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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in FIH group (LON:FIH). While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
See our latest analysis for FIH group
How Fast Is FIH group Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. FIH group managed to grow EPS by 11% per year, over three years. That's a good rate of growth, if it can be sustained.
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. FIH group's EBIT margins have actually improved by 2.3 percentage points in the last year, to reach 9.7%, but, on the flip side, revenue was down 3.0%. That's not ideal.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
FIH group isn't a huge company, given its market capitalization of UK£40m. That makes it extra important to check on its balance sheet strength.
Are FIH group Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Like a sturdy phalanx FIH group insiders have stood united by refusing to sell shares over the last year. But the bigger deal is that the Non-Executive Director, Robert Johnston, paid UK£109k to buy shares at an average price of UK£2.80.
Does FIH group Deserve A Spot On Your Watchlist?
One important encouraging feature of FIH group is that it is growing profits. Not every business can grow its EPS, but FIH group certainly can. The cherry on top is that we have an insider buying shares. That encourages me further to keep an eye on this stock. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if FIH group is trading on a high P/E or a low P/E, relative to its industry.