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.Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in WestStar Industrial ( ASX:WSI ).While profit is not necessarily a social good, it’s easy to admire a business that can consistently produce it.Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
See our latest analysis for WestStar Industrial
How Quickly Is WestStar Industrial Increasing Earnings Per Share? If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS).That means EPS growth is considered a real positive by most successful long-term investors.Who among us would not applaud WestStar Industrial’s stratospheric annual EPS growth of 40%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.
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).
While we note WestStar Industrial’s EBIT margins were flat over the last year, revenue grew by a solid 124% to AU$122m.That’s progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time.
Click on the chart to see the exact numbers.
WestStar Industrial isn’t a huge company, given its market capitalization of AU$19m.That makes it extra important to check on its balance sheet strength .
Are WestStar Industrial Insiders Aligned With All Shareholders? Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders.So as you can imagine, the fact that WestStar Industrial insiders own a significant number of shares certainly appeals to me.Actually, with 42% of the company to their names, insiders are profoundly invested in the business.
I’m reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders.Of course, WestStar Industrial is a very small company, with a market cap of only AU$19m.So despite a large proportional holding, insiders only have AU$8.0m worth of stock.
That’s not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.
Is WestStar Industrial Worth Keeping An Eye On? WestStar Industrial’s earnings have taken off like any random crypto-currency did, back in 2017.That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest.The hope is, of course, that the strong growth marks a fundamental improvement in the business economics.
So yes, on this short analysis I do think it’s worth considering WestStar Industrial for a spot on your watchlist.We should say that we’ve discovered 3 warning signs for WestStar Industrial that you should be aware of before investing here.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares.
But as a growth investor I always like to check out companies that do have those features.You can access 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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