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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Probiotec (ASX:PBP). 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.
Check out our latest analysis for Probiotec
How Fast Is Probiotec Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. I, for one, am blown away by the fact that Probiotec has grown EPS by 46% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a glint in the eye of my lover.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that Probiotec is growing revenues, and EBIT margins improved by 2.8 percentage points to 9.0%, over the last year. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
Probiotec isn't a huge company, given its market capitalization of AU$99m. That makes it extra important to check on its balance sheet strength.
Are Probiotec Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company, if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Probiotec shares worth a considerable sum. Indeed, they hold AU$34m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 35% of the company, demonstrating a degree of high-level alignment with shareholders.