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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in FSA Group (ASX:FSA). 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 FSA Group Growing Its Earnings Per Share?
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So EPS growth can certainly encourage an investor to take note of a stock. It's good to see that FSA Group's EPS have grown from AU$0.12 to AU$0.13 over twelve months. I doubt many would complain about that 13% gain.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of FSA Group's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. FSA Group reported flat revenue and EBIT margins over the last year. That's not bad, but it doesn't point to ongoing future growth, either.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
FSA Group isn't a huge company, given its market capitalization of AU$130m. That makes it extra important to check on its balance sheet strength.
Are FSA Group Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Like a sturdy phalanx FSA Group insiders have stood united by refusing to sell shares over the last year. But my excitement comes from the AU$72k that Non-Executive Chairman David Bower spent buying shares (at an average price of about AU$1.03).
Along with the insider buying, another encouraging sign for FSA Group is that insiders, as a group, have a considerable shareholding. To be specific, they have AU$43m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 33% of the company, demonstrating a degree of high-level alignment with shareholders.
Does FSA Group Deserve A Spot On Your Watchlist?
One positive for FSA Group is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with FSA Group (at least 1 which can't be ignored) , and understanding them should be part of your investment process.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of FSA Group, you'll probably love this free list of growing companies that insiders are buying.
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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