If EPS Growth Is Important To You, Journeo (LON:JNEO) Presents An Opportunity
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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Journeo (LON:JNEO). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
See our latest analysis for Journeo
Journeo's Improving Profits
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's easy to see why many investors focus in on EPS growth. Impressively, Journeo's EPS catapulted from UK£0.03 to UK£0.056, over the last year. Year on year growth of 88% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.
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. While we note Journeo achieved similar EBIT margins to last year, revenue grew by a solid 35% to UK£21m. That's encouraging news for the company!
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.
Since Journeo is no giant, with a market capitalisation of UK£27m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Journeo 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Shareholders in Journeo will be more than happy to see insiders committing themselves to the company, spending UK£171k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. We also note that it was the CEO & Executive Director, Russell Singleton, who made the biggest single acquisition, paying UK£105k for shares at about UK£1.05 each.
It's commendable to see that insiders have been buying shares in Journeo, but there is more evidence of shareholder friendly management. Namely, Journeo has a very reasonable level of CEO pay. For companies with market capitalisations under UK£162m, like Journeo, the median CEO pay is around UK£283k.
Journeo offered total compensation worth UK£216k to its CEO in the year to December 2021. That comes in below the average for similar sized companies and seems pretty reasonable. 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 Journeo To Your Watchlist?
Journeo's earnings per share growth have been climbing higher at an appreciable rate. Better yet, we can observe insider buying and the chief executive pay looks reasonable. The strong EPS growth suggests Journeo may be at an inflection point. If these have piqued your interest, then this stock surely warrants a spot on your watchlist. We should say that we've discovered 4 warning signs for Journeo (3 are concerning!) that you should be aware of before investing here.
The good news is that Journeo 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.
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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