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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 completely lacks a track record of revenue and profit. 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.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Future (LON:FUTR). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 Future Growing Its Earnings Per Share?
In the last three years Future'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. Like a firecracker arcing through the night sky, Future's EPS shot from UK£0.24 to UK£0.66, over the last year. You don't see 169% year-on-year growth like that, very often. That could be a sign that the business has reached a true inflection point.
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). Future shareholders can take confidence from the fact that EBIT margins are up from 18% to 23%, and revenue is growing. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Future?
Are Future Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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.
Although we did see some insider selling (worth -UK£367k) this was overshadowed by a mountain of buying, totalling UK£9.4m in just one year. I find this encouraging because it suggests they are optimistic about the Future's future. It is also worth noting that it was Peter Wood who made the biggest single purchase, worth UK£2.1m, paying UK£18.18 per share.
The good news, alongside the insider buying, for Future bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enormous stake in the company, worth UK£264m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Is Future Worth Keeping An Eye On?
Future's earnings have taken off like any random crypto-currency did, back in 2017. 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 Future belongs on the top of your watchlist. You still need to take note of risks, for example - Future has 4 warning signs we think you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Future, 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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