With EPS Growth And More, Advanced Braking Technology (ASX:ABV) Makes An Interesting Case
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. 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.
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 Advanced Braking Technology (ASX:ABV). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
See our latest analysis for Advanced Braking Technology
How Fast Is Advanced Braking Technology Growing Its Earnings Per Share?
Over the last three years, Advanced Braking Technology has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. To the delight of shareholders, Advanced Braking Technology's EPS soared from AU$0.0011 to AU$0.0014, over the last year. That's a impressive gain of 26%.
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. EBIT margins for Advanced Braking Technology remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 17% to AU$10m. That's a real positive.
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.
Advanced Braking Technology isn't a huge company, given its market capitalisation of AU$13m. That makes it extra important to check on its balance sheet strength.
Are Advanced Braking Technology Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. 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.
Insider selling of Advanced Braking Technology shares was insignificant compared to the one buyer, over the last twelve months. Specifically the company insider, Keith Knowles, spent AU$656k, paying about AU$0.034 per share. That certainly piques our interest.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Advanced Braking Technology insiders own more than a third of the company. In fact, they own 62% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. Although, with Advanced Braking Technology being valued at AU$13m, this is a small company we're talking about. That means insiders only have AU$8.3m worth of shares, despite the large proportional holding. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.
Is Advanced Braking Technology Worth Keeping An Eye On?
You can't deny that Advanced Braking Technology has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant piece of the pie when it comes to the company's stock, and one has been buying more. These things considered, this is one stock worth watching. However, before you get too excited we've discovered 3 warning signs for Advanced Braking Technology (1 doesn't sit too well with us!) that you should be aware of.
Keen growth investors love to see insider buying. Thankfully, Advanced Braking Technology 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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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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