With EPS Growth And More, X Financial (NYSE:XYF) Makes An Interesting Case
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 currently lacks a track record of revenue and 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like X Financial (NYSE:XYF). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for X Financial
How Fast Is X Financial Growing?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. To the delight of shareholders, X Financial has achieved impressive annual EPS growth of 42%, compound, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. It's noted that X 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 X Financial's EBIT margins are down, it's not all bad news as revenues are at least stable. That doesn't inspire a great deal of confidence.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Since X Financial is no giant, with a market capitalisation of US$206m, you should definitely check its cash and debt before getting too excited about its prospects.
Are X Financial Insiders Aligned With All Shareholders?
Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So we're pleased to report that X Financial insiders own a meaningful share of the business. Indeed, with a collective holding of 53%, company insiders are in control and have plenty of capital behind the venture. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. To give you an idea, the value of insiders' holdings in the business are valued at CN¥110m at the current share price. That's nothing to sneeze at!
Is X Financial Worth Keeping An Eye On?
X Financial's earnings per share growth have been climbing higher at an appreciable rate. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching X Financial very closely. You should always think about risks though. Case in point, we've spotted 2 warning signs for X Financial you should be aware of, and 1 of them doesn't sit too well with us.
Although X Financial certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
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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