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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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Basic-Fit (AMS:BFIT). While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
See our latest analysis for Basic-Fit
Basic-Fit's Improving Profits
In the last three years Basic-Fit's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like a falcon taking flight, Basic-Fit's EPS soared from €0.20 to €0.32, over the last year. That's a impressive gain of 58%.
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. Basic-Fit maintained stable EBIT margins over the last year, all while growing revenue 23% to €402m. That's progress.
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.
Fortunately, we've got access to analyst forecasts of Basic-Fit's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Basic-Fit Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Basic-Fit shares worth a considerable sum. Notably, they have an enormous stake in the company, worth €288m. That equates to 17% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.
Should You Add Basic-Fit To Your Watchlist?
For growth investors like me, Basic-Fit's raw rate of earnings growth is a beacon in the night. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. One of Buffett's considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing Basic-Fit's ROE with industry peers (and the market at large).