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Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Imperial Brands (LON:IMB). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Imperial Brands with the means to add long-term value to shareholders.
Imperial Brands' Improving Profits
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Imperial Brands' EPS shot up from UK£2.52 to UK£3.21; a result that's bound to keep shareholders happy. That's a fantastic gain of 27%.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Imperial Brands achieved similar EBIT margins to last year, revenue grew by a solid 2.3% to UK£18b. That's encouraging news for the company!
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.
Check out our latest analysis for Imperial Brands
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Imperial Brands' forecast profits?
Are Imperial Brands Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. 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.
Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But the real excitement comes from the UK£40k that Independent Non-Executive Director Alan Johnson spent buying shares (at an average price of about UK£28.62). It seems at least one insider has seen potential in the company's future - and they're willing to put money on the line.