For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
So if you're like me, you might be more interested in profitable, growing companies, like Majesco (NASDAQ:MJCO). 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.
How Fast Is Majesco Growing Its Earnings Per Share?
In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Majesco's EPS went from US$0.03 to US$0.13 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement.
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. Majesco shareholders can take confidence from the fact that EBIT margins are up from 4.1% to 6.6%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are Majesco 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.
Like a sturdy phalanx Majesco insiders have stood united by refusing to sell shares over the last year. But the bigger deal is that the Independent Director, Robert Restrepo, paid US$156k to buy shares at an average price of US$6.23.
Does Majesco Deserve A Spot On Your Watchlist?
Majesco's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Growth investors should find it difficult to look past that strong EPS move. And in fact, it could well signal a fundamental shift in the business economics. If that's the case, you may regret neglecting to put Majesco on your watchlist. One of Buffett's considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing Majesco's ROE with industry peers (and the market at large).
The good news is that Majesco 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
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