It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like A3 Allmänna IT- och telekomaktiebolaget (STO:ATRE). While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
View our latest analysis for A3 Allmänna IT- och telekomaktiebolaget
How Fast Is A3 Allmänna IT- och telekomaktiebolaget Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. It certainly is nice to see that A3 Allmänna IT- och telekomaktiebolaget has managed to grow EPS by 24% per year over three years. This has no doubt fuelled the optimism that sees the stock trading on a high multiple of earnings.
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. A3 Allmänna IT- och telekomaktiebolaget's EBIT margins are flat but, of some concern, its revenue is actually down. Suffice it to say that is not a great sign of growth.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
A3 Allmänna IT- och telekomaktiebolaget isn't a huge company, given its market capitalization of kr488m. That makes it extra important to check on its balance sheet strength.
Are A3 Allmänna IT- och telekomaktiebolaget 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. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
We haven't seen any insiders selling A3 Allmänna IT- och telekomaktiebolaget shares, in the last year. With that in mind, it's heartening that Thomas Nygren, the Chairman of the Board of the company, paid kr144k for shares at around kr14.44 each.