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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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Wah Fu Education Group (NASDAQ:WAFU). 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 Wah Fu Education Group
How Fast Is Wah Fu Education Group Growing Its Earnings Per Share?
In the last three years Wah Fu Education Group's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Wah Fu Education Group boosted its trailing twelve month EPS from US$0.17 to US$0.21, in the last year. This amounts to a 23% gain; a figure that shareholders will be pleased to see.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Wah Fu Education Group's EBIT margins have actually improved by 9.7 percentage points in the last year, to reach 19%, but, on the flip side, revenue was down 6.8%. That falls short of ideal.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Wah Fu Education Group isn't a huge company, given its market capitalisation of US$8.6m. That makes it extra important to check on its balance sheet strength.
Are Wah Fu Education Group Insiders Aligned With All Shareholders?
Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So those who are interested in Wah Fu Education Group will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 65% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. Although, with Wah Fu Education Group being valued at US$8.6m, this is a small company we're talking about. So despite a large proportional holding, insiders only have US$5.6m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.