Do Australian Foundation Investment's (ASX:AFI) Earnings Warrant Your Attention?
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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Australian Foundation Investment (ASX:AFI). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for Australian Foundation Investment
How Fast Is Australian Foundation Investment Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Over the last three years, Australian Foundation Investment has grown EPS by 5.6% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
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. It's noted that Australian Foundation Investment's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While we note Australian Foundation Investment achieved similar EBIT margins to last year, revenue grew by a solid 25% to AU$410m. 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.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are Australian Foundation Investment Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
One positive for Australian Foundation Investment, is that company insiders spent AU$22k acquiring shares in the last year. While this isn't much, we also note an absence of sales.
It's commendable to see that insiders have been buying shares in Australian Foundation Investment, but there is more evidence of shareholder friendly management. To be specific, the CEO is paid modestly when compared to company peers of the same size. For companies with market capitalisations between AU$5.7b and AU$17b, like Australian Foundation Investment, the median CEO pay is around AU$3.8m.
The CEO of Australian Foundation Investment only received AU$1.6m in total compensation for the year ending June 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Australian Foundation Investment To Your Watchlist?
One positive for Australian Foundation Investment is that it is growing EPS. That's nice to see. And that's not all. We've also seen insiders buying stock, and noted modest executive pay. The sum of all that, points to a quality business, and a genuine prospect for further research. Before you take the next step you should know about the 1 warning sign for Australian Foundation Investment that we have uncovered.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Australian Foundation Investment, 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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