It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In contrast to all that, I prefer to spend time on companies like Metcash (ASX:MTS), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Metcash Growing Its Earnings Per Share?
In the last three years Metcash's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Metcash boosted its trailing twelve month EPS from AU$0.23 to AU$0.25, in the last year. I doubt many would complain about that 11% gain.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Metcash's EBIT margins were flat over the last year, revenue grew by a solid 4.4% to AU$14b. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Metcash's forecast profits?
Are Metcash 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Not only did Metcash insiders refrain from selling stock during the year, but they also spent AU$248k buying it. That's nice to see, because it suggests insiders are optimistic. We also note that it was the Non-Executive Director, Margaret Haseltine, who made the biggest single acquisition, paying AU$198k for shares at about AU$3.49 each.
Should You Add Metcash To Your Watchlist?
One important encouraging feature of Metcash is that it is growing profits. Not every business can grow its EPS, but Metcash certainly can. The gravy on the mushroom pie is the insider buying, which has me tasting potential opportunity; one for the watchlist, I'd posit. What about risks? Every company has them, and we've spotted 1 warning sign for Metcash you should know about.
As a growth investor I do like to see insider buying. But Metcash 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.