The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Exchange Income (TSE:EIF). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Exchange Income with the means to add long-term value to shareholders.
Exchange Income's Improving Profits
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. To the delight of shareholders, Exchange Income's EPS soared from CA$1.62 to CA$2.49, over the last year. That's a impressive gain of 54%.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Exchange Income maintained stable EBIT margins over the last year, all while growing revenue 44% to CA$1.9b. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Exchange Income.
Are Exchange Income Insiders Aligned With All Shareholders?
It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Exchange Income followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have CA$45m worth of shares. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 2.2%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
Does Exchange Income Deserve A Spot On Your Watchlist?
You can't deny that Exchange Income has grown its earnings per share at a very impressive rate. That's attractive. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Exchange Income's continuing strength. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. Before you take the next step you should know about the 3 warning signs for Exchange Income (1 is concerning!) that we have uncovered.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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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