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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Element Fleet Management (TSE:EFN). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
How Fast Is Element Fleet Management Growing Its Earnings Per Share?
Over the last three years, Element Fleet Management has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. It's good to see that Element Fleet Management's EPS has grown from CA$0.87 to CA$1.05 over twelve months. That's a 21% gain; respectable growth in the broader scheme of things.
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. Our analysis has highlighted that Element Fleet Management's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. EBIT margins for Element Fleet Management remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 17% to CA$1.8b. 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.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Element Fleet Management?
Are Element Fleet Management 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Although we did see some insider selling (worth CA$520k) this was overshadowed by a mountain of buying, totalling CA$4.3m in just one year. This bodes well for Element Fleet Management as it highlights the fact that those who are important to the company having a lot of faith in its future. Zooming in, we can see that the biggest insider purchase was by company insider Jay Forbes for CA$1.8m worth of shares, at about CA$18.50 per share.
On top of the insider buying, it's good to see that Element Fleet Management insiders have a valuable investment in the business. As a matter of fact, their holding is valued at CA$20m. This considerable investment should help drive long-term value in the business. Even though that's only about 0.2% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Should You Add Element Fleet Management To Your Watchlist?
As previously touched on, Element Fleet Management 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. We should say that we've discovered 1 warning sign for Element Fleet Management that you should be aware of before investing here.
Keen growth investors love to see insider buying. Thankfully, Element Fleet Management 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.