Yahoo Finance Here's Why We Think Hardwoods Distribution (TSE:HDI) Is Well Worth Watching
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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
In contrast to all that, many investors prefer to focus on companies like Hardwoods Distribution (TSE:HDI), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for Hardwoods Distribution
Hardwoods Distribution's Improving Profits
In the last three years Hardwoods Distribution'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. Outstandingly, Hardwoods Distribution's EPS shot from US$2.40 to US$6.54, over the last year. Year on year growth of 172% is certainly a sight to behold. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.
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. Hardwoods Distribution shareholders can take confidence from the fact that EBIT margins are up from 6.9% to 9.6%, and revenue is growing. That's great to see, on both counts.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Fortunately, we've got access to analyst forecasts of Hardwoods Distribution's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Hardwoods Distribution Insiders Aligned With All Shareholders?
It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Hardwoods Distribution followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they hold US$27m worth of its stock. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 5.0%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
Is Hardwoods Distribution Worth Keeping An Eye On?
Hardwoods Distribution's earnings have taken off in quite an impressive fashion. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. Based on the sum of its parts, we definitely think its worth watching Hardwoods Distribution very closely. We don't want to rain on the parade too much, but we did also find 5 warning signs for Hardwoods Distribution (3 are significant!) that you need to be mindful of.
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
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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