Here's Why We Think Litigation Capital Management (LON:LIT) Might Deserve Your Attention Today
The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
In contrast to all that, many investors prefer to focus on companies like Litigation Capital Management (LON:LIT), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for Litigation Capital Management
How Fast Is Litigation Capital Management Growing Its Earnings Per Share?
Litigation Capital Management has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. Over the last year, Litigation Capital Management increased its EPS from AU$0.33 to AU$0.35. That's a modest gain of 5.8%.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. It's noted that Litigation Capital Management's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Litigation Capital Management shareholders can take confidence from the fact that EBIT margins are up from 91% to 93%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.
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 Litigation Capital Management is no giant, with a market capitalisation of UK£111m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Litigation Capital Management 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. Litigation Capital Management followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have AU$18m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 16% of the shares on issue for the business, an appreciable amount considering the market cap.
Is Litigation Capital Management Worth Keeping An Eye On?
As previously touched on, Litigation Capital Management is a growing business, which is encouraging. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. The combination definitely favoured by investors so consider keeping the company on a watchlist. Still, you should learn about the 1 warning sign we've spotted with Litigation Capital Management.
While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in GB with promising growth potential and insider confidence.
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.
