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Does Begbies Traynor Group (LON:BEG) Deserve A Spot On Your Watchlist?

Simply Wall St

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Begbies Traynor Group (LON:BEG). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

See our latest analysis for Begbies Traynor Group

Begbies Traynor Group's Improving Profits

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that Begbies Traynor Group grew its EPS from UK£0.0094 to UK£0.032, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The good news is that Begbies Traynor Group is growing revenues, and EBIT margins improved by 2.7 percentage points to 9.9%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

AIM:BEG Income Statement, December 21st 2019

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 Begbies Traynor Group EPS 100% free.

Are Begbies Traynor Group Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.

We haven't seen any insiders selling Begbies Traynor Group shares, in the last year. So it's definitely nice that Non-Executive Director John May bought UK£25k worth of shares at an average price of around UK£0.77.

Along with the insider buying, another encouraging sign for Begbies Traynor Group is that insiders, as a group, have a considerable shareholding. Indeed, they hold UK£9.8m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 8.8% of the company, demonstrating a degree of high-level alignment with shareholders.

Is Begbies Traynor Group Worth Keeping An Eye On?

Begbies Traynor Group's earnings per share have taken off like a rocket aimed right at the moon. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Begbies Traynor Group deserves timely attention. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Begbies Traynor Group is trading on a high P/E or a low P/E, relative to its industry.

As a growth investor I do like to see insider buying. But Begbies Traynor 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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.