Here's Why Consumer Portfolio Services (NASDAQ:CPSS) Has Caught The Eye Of Investors
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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.
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 Consumer Portfolio Services (NASDAQ:CPSS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Consumer Portfolio Services with the means to add long-term value to shareholders.
View our latest analysis for Consumer Portfolio Services
Consumer Portfolio Services' Improving Profits
In the last three years Consumer Portfolio Services' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Impressively, Consumer Portfolio Services' EPS catapulted from US$2.11 to US$4.19, over the last year. It's not often a company can achieve year-on-year growth of 99%. The best case scenario? That the business has hit a true inflection point.
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. It's noted that Consumer Portfolio Services' revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Consumer Portfolio Services maintained stable EBIT margins over the last year, all while growing revenue 28% to US$270m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Since Consumer Portfolio Services is no giant, with a market capitalisation of US$201m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Consumer Portfolio Services Insiders Aligned With All Shareholders?
It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Consumer Portfolio Services followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Holding US$69m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. At 35% of the company, the co-investment by insiders fosters confidence that management will make long-term focussed decisions.
Does Consumer Portfolio Services Deserve A Spot On Your Watchlist?
Consumer Portfolio Services' earnings per share have been soaring, with growth rates sky high. 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 Consumer Portfolio Services very closely. You still need to take note of risks, for example - Consumer Portfolio Services has 1 warning sign we think you should be aware of.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access 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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