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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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
So if you're like me, you might be more interested in profitable, growing companies, like Group (ASX:PTB). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
Check out our latest analysis for Group
Group's Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Over the last three years, Group has grown EPS by 13% per year. That's a pretty good rate, if the company can sustain it.
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. Group maintained stable EBIT margins over the last year, all while growing revenue 13% to AU$102m. That's progress.
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.
Group isn't a huge company, given its market capitalization of AU$148m. That makes it extra important to check on its balance sheet strength.
Are Group 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 Group shares worth a considerable sum. To be specific, they have AU$25m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 17% of the company; visible skin in the game.
Is Group Worth Keeping An Eye On?
One positive for Group is that it is growing EPS. That's nice to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. You still need to take note of risks, for example - Group has 2 warning signs (and 1 which is significant) we think you should know about.