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Should You Be Adding Synectics (LON:SNX) To Your Watchlist Today?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.

In contrast to all that, many investors prefer to focus on companies like Synectics (LON:SNX), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Synectics

Synectics' Improving Profits

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. Which is why EPS growth is looked upon so favourably. It's an outstanding feat for Synectics to have grown EPS from UK£0.038 to UK£0.13 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. Could this be a sign that the business has reached an inflection point?

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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. Synectics shareholders can take confidence from the fact that EBIT margins are up from 2.9% to 6.2%, and revenue is growing. Both of which are great metrics to check off for potential growth.

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.

earnings-and-revenue-history
earnings-and-revenue-history

Synectics isn't a huge company, given its market capitalisation of UK£32m. That makes it extra important to check on its balance sheet strength.

Are Synectics 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.

A great takeaway for shareholders is that company insiders within Synectics have collectively spent UK£15k acquiring shares in the company. While this investment may be modest, it is great considering the lack of insider selling. Zooming in, we can see that the biggest insider purchase was by Independent Non-Executive Director Andrew Lockwood for UK£15k worth of shares, at about UK£1.74 per share.

Should You Add Synectics To Your Watchlist?

Synectics' earnings per share growth have been climbing higher at an appreciable rate. Most growth-seeking investors will find it hard to ignore that sort of explosive EPS growth. And may very well signal a significant inflection point for the business. If this these factors intrigue you, then an addition of Synectics to your watchlist won't go amiss. We should say that we've discovered 1 warning sign for Synectics that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Synectics, you'll probably love this curated collection of companies in GB that have witnessed growth 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.