Yahoo Finance Here's Why Litigation Capital Management (LON:LIT) Has Caught The Eye Of Investors
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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
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 Litigation Capital Management (LON:LIT). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Litigation Capital Management with the means to add long-term value to shareholders.
View our latest analysis for Litigation Capital Management
How Fast Is Litigation Capital Management Growing Its Earnings Per Share?
Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So for many budding investors, improving EPS is considered a good sign. Commendations have to be given in seeing that Litigation Capital Management grew its EPS from AU$0.063 to AU$0.26, in one short year. Even though that growth rate may not be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
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. It's noted that Litigation Capital Management's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. The music to the ears of Litigation Capital Management shareholders is that EBIT margins have grown from 39% to 77% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.
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.
Litigation Capital Management isn't a huge company, given its market capitalisation of UK£138m. That makes it extra important to check on its balance sheet strength.
Are Litigation Capital Management Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
The good news is that Litigation Capital Management insiders spent a whopping AU$2.1m on stock in just one year, without so much as a single sale. Knowing this, Litigation Capital Management will have have all eyes on them in anticipation for the what could happen in the near future. Zooming in, we can see that the biggest insider purchase was by Independent Non-Executive Chairman Jonathan Moulds for UK£1.2m worth of shares, at about UK£0.71 per share.
Along with the insider buying, another encouraging sign for Litigation Capital Management is that insiders, as a group, have a considerable shareholding. Indeed, they hold AU$20m worth of its stock. That's a lot of money, and no small incentive to work hard. As a percentage, this totals to 15% of the shares on issue for the business, an appreciable amount considering the market cap.
Should You Add Litigation Capital Management To Your Watchlist?
Litigation Capital Management's earnings per share growth have been climbing higher at an appreciable rate. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Litigation Capital Management belongs near the top of your watchlist. We don't want to rain on the parade too much, but we did also find 1 warning sign for Litigation Capital Management that you need to be mindful of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Litigation Capital Management, you'll probably love this free list of growing companies that insiders are buying.
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.
