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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like boohoo group (LON:BOO). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Fast Is boohoo group Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud boohoo group's stratospheric annual EPS growth of 40%, compound, over the last three years? While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.
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. boohoo group maintained stable EBIT margins over the last year, all while growing revenue 45% to UK£1.5b. That's a real positive.
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.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for boohoo group.
Are boohoo group Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
It's a pleasure to note that insiders spent UK£16m buying boohoo group shares, over the last year, without reporting any share sales whatsoever. As if for a flower bud approaching bloom, I become an expectant observer, anticipating with hope, that something splendid is coming. We also note that it was the Co-Founder & Group Executive Chairman, Mahmud Kamani, who made the biggest single acquisition, paying UK£11m for shares at about UK£2.14 each.
On top of the insider buying, it's good to see that boohoo group insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at UK£775m. That equates to 20% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.
Should You Add boohoo group To Your Watchlist?
boohoo group's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. What's more insiders own a significant stake in the company and have been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest boohoo group belongs on the top of your watchlist. We should say that we've discovered 2 warning signs for boohoo group that you should be aware of before investing here.
As a growth investor I do like to see insider buying. But boohoo group 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.
This article by Simply Wall St is general in nature. 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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