With EPS Growth And More, Velocity Financial (NYSE:VEL) 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. 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
In contrast to all that, many investors prefer to focus on companies like Velocity Financial (NYSE:VEL), which has not only revenues, but also profits. 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 Velocity Financial
How Quickly Is Velocity Financial Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Impressively, Velocity Financial has grown EPS by 17% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that Velocity Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While we note Velocity Financial achieved similar EBIT margins to last year, revenue grew by a solid 30% to US$109m. That's progress.
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.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Velocity Financial's future profits.
Are Velocity Financial 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. 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.
It's nice to see that there have been no reports of any insiders selling shares in Velocity Financial in the previous 12 months. With that in mind, it's heartening that John Pitstick, the Independent Director of the company, paid US$25k for shares at around US$8.27 each. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Velocity Financial.
Should You Add Velocity Financial To Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Velocity Financial's strong EPS growth. Growth in EPS isn't the only striking feature with company insiders adding to their holdings being another noteworthy vote of confidence for the company. So on this analysis, Velocity Financial is probably worth spending some time on. What about risks? Every company has them, and we've spotted 1 warning sign for Velocity Financial you should know about.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Velocity Financial, you'll probably love this free list of growing companies that insiders are buying.
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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