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Do Enstar Group's (NASDAQ:ESGR) Earnings Warrant Your Attention?

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Simply Wall St
·4 min read
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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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In contrast to all that, I prefer to spend time on companies like Enstar Group (NASDAQ:ESGR), which has not only revenues, but also profits. 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Enstar Group

How Fast Is Enstar Group Growing Its Earnings Per Share?

In the last three years Enstar Group's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like the last firework on New Year's Eve accelerating into the sky, Enstar Group's EPS shot from US$27.31 to US$51.13, over the last year. You don't see 87% year-on-year growth like that, very often. That could be a sign that the business has reached a true inflection point.

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. Not all of Enstar Group's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. The good news is that Enstar Group is growing revenues, and EBIT margins improved by 13.6 percentage points to 42%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
earnings-and-revenue-history

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Enstar 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

First things first; I didn't see insiders sell Enstar Group shares in the last year. Even better, though, is that the Independent Director, Hans-Peter Gerhardt, bought a whopping US$494k worth of shares, paying about US$124 per share, on average. Big buys like that give me a sense of opportunity; actions speak louder than words.

Along with the insider buying, another encouraging sign for Enstar Group is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth US$221m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Is Enstar Group Worth Keeping An Eye On?

Enstar Group's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest Enstar Group belongs on the top of your watchlist. It is worth noting though that we have found 1 warning sign for Enstar Group that you need to take into consideration.

The good news is that Enstar Group is not the only growth stock with insider buying. Here's a list of them... 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.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.