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 as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn’t suit, you might be more interested in profitable, growing companies, like G8 Education (ASX:GEM). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide G8 Education with the means to add long-term value to shareholders.
Check out our latest analysis for G8 Education
G8 Education’s Improving Profits
G8 Education has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn’t be a fair assessment of the company’s future. So it would be better to isolate the growth rate over the last year for our analysis. G8 Education’s EPS shot up from AU$0.044 to AU$0.069; a result that’s bound to keep shareholders happy. That’s a commendable gain of 58%.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. While we note G8 Education achieved similar EBIT margins to last year, revenue grew by a solid 9.1% to AU$983m. That’s encouraging news for the company!
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Fortunately, we’ve got access to analyst forecasts of G8 Education’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are G8 Education 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.
In the last year insider at G8 Education were both selling and buying shares; but happily, as a group they spent AU$268k more on stock, than they netted from selling it. On balance, that’s a good sign. It is also worth noting that it was CEO, MD & Director Pejman Okhovat who made the biggest single purchase, worth AU$108k, paying AU$1.08 per share.
Should You Add G8 Education To Your Watchlist?
You can’t deny that G8 Education has grown its earnings per share at a very impressive rate. That’s attractive. Not only is that growth rate rather juicy, but the insider buying adds fuel to the fire. In essence, your time will not be wasted checking out G8 Education in more detail. You should always think about risks though. Case in point, we’ve spotted 1 warning sign for G8 Education you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of G8 Education, you’ll probably love this curated collection of companies in AU that have an attractive valuation alongside insider buying in the last three months.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
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