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 currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
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 Count (ASX:CUP). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Count with the means to add long-term value to shareholders.
How Fast Is Count Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. We can see that in the last three years Count grew its EPS by 16% 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. The good news is that Count is growing revenues, and EBIT margins improved by 4.1 percentage points to 12%, over the last year. Ticking those two boxes is a good sign of growth, in our book.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
See our latest analysis for Count
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Count's forecast profits?
Are Count 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Shareholders in Count will be more than happy to see insiders committing themselves to the company, spending AU$430k on shares in just twelve months. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. Zooming in, we can see that the biggest insider purchase was by Independent Non-Executive Chairman Raymond Kellerman for AU$210k worth of shares, at about AU$1.05 per share.
On top of the insider buying, it's good to see that Count insiders have a valuable investment in the business. To be specific, they have AU$25m worth of shares. This considerable investment should help drive long-term value in the business. That amounts to 7.3% of the company, demonstrating a degree of high-level alignment with shareholders.
Should You Add Count To Your Watchlist?
As previously touched on, Count is a growing business, which is encouraging. On top of that, we've seen insiders buying shares even though they already own plenty. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. What about risks? Every company has them, and we've spotted 2 warning signs for Count you should know about.
The good news is that Count is not the only stock with insider buying. Here's a list of small cap, undervalued companies in AU with 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.