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.' 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 Breville Group (ASX:BRG). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
See our latest analysis for Breville Group
How Quickly Is Breville Group Increasing Earnings Per Share?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Breville Group grew its EPS by 13% per year. That's a pretty good rate, if the company can sustain it.
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. EBIT margins for Breville Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 19% to AU$1.4b. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Breville Group's future EPS 100% free.
Are Breville Group 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Despite AU$5.3k worth of sales, Breville Group insiders have overwhelmingly been buying the stock, spending AU$884k on purchases in the last twelve months. An optimistic sign for those with Breville Group in their watchlist. It is also worth noting that it was Deputy Chairperson & Lead Independent Director Lawrence Myers who made the biggest single purchase, worth AU$774k, paying AU$23.47 per share.
The good news, alongside the insider buying, for Breville Group bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have AU$33m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 1.2% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Does Breville Group Deserve A Spot On Your Watchlist?
As previously touched on, Breville Group is a growing business, which is encouraging. In addition, insiders have been busy adding to their sizeable holdings in the company. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. You still need to take note of risks, for example - Breville Group has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Breville Group, you'll probably love this free list of growing companies that insiders are buying.
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.
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