Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Aegis Logistics (NSE:AEGISCHEM). 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 Aegis Logistics Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Aegis Logistics has managed to grow EPS by 26% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Aegis Logistics's EBIT margins were flat over the last year, revenue grew by a solid 32% to ₹66b. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Aegis Logistics's forecast profits?
Are Aegis Logistics Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Aegis Logistics top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the Group President & COO, Sudhir Malhotra, paid ₹4.6m to buy shares at an average price of ₹180.
Along with the insider buying, another encouraging sign for Aegis Logistics is that insiders, as a group, have a considerable shareholding. Indeed, they hold ₹996m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 1.6% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Is Aegis Logistics Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Aegis Logistics's strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Aegis Logistics is trading on a high P/E or a low P/E, relative to its industry.
The good news is that Aegis Logistics 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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