It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like boohoo group (LON:BOO). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Quickly Is boohoo group Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. I, for one, am blown away by the fact that boohoo group has grown EPS by 38% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note boohoo group's EBIT margins were flat over the last year, revenue grew by a solid 44% to UK£1.0b. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future boohoo group EPS 100% free.
Are boohoo group Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
It's good to see boohoo group insiders walking the walk, by spending UK£597k on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. It is also worth noting that it was Senior Independent Director Sara Murray who made the biggest single purchase, worth UK£226k, paying UK£2.26 per share.
The good news, alongside the insider buying, for boohoo group bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enormous stake in the company, worth UK£1.0b. That equates to 31% of the company, making insiders powerful and aligned with other shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
Is boohoo group Worth Keeping An Eye On?
boohoo group's earnings per share have taken off like a rocket aimed right at the moon. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest boohoo group belongs on the top of your watchlist. Of course, profit growth is one thing but it's even better if boohoo group is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.
As a growth investor I do like to see insider buying. But boohoo group 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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