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.
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 Acrow Formwork and Construction Services (ASX:ACF). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for Acrow Formwork and Construction Services
How Quickly Is Acrow Formwork and Construction Services Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. It certainly is nice to see that Acrow Formwork and Construction Services has managed to grow EPS by 27% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
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. The music to the ears of Acrow Formwork and Construction Services shareholders is that EBIT margins have grown from 3.9% to 12% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Acrow Formwork and Construction Services' forecast profits?
Are Acrow Formwork and Construction Services Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Even though some insiders sold down their holdings, their actions speak louder than words with AU$439k more invested than sold by people who know they company best. You could argue that level of buying implies genuine confidence in the business. It is also worth noting that it was CEO, MD & Executive Director Steven Boland who made the biggest single purchase, worth AU$136k, paying AU$0.53 per share.
The good news, alongside the insider buying, for Acrow Formwork and Construction Services bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have AU$22m worth of shares. That's a lot of money, and no small incentive to work hard. That amounts to 13% of the company, demonstrating a degree of high-level alignment with shareholders.
Is Acrow Formwork and Construction Services Worth Keeping An Eye On?
For growth investors, Acrow Formwork and Construction Services' raw rate of earnings growth is a beacon in the night. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. So it's fair to say that this stock may well deserve a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Acrow Formwork and Construction Services (1 makes us a bit uncomfortable) you should be aware of.
Keen growth investors love to see insider buying. Thankfully, Acrow Formwork and Construction Services isn't the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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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