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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Macfarlane Group (LON:MACF). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Quickly Is Macfarlane Group Increasing Earnings Per Share?
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). That makes EPS growth an attractive quality for any company. Over the last three years, Macfarlane Group has grown EPS by 7.3% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
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 Macfarlane Group's EBIT margins were flat over the last year, revenue grew by a solid 2.1% to UK£230m. That's a real positive.
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.
Since Macfarlane Group is no giant, with a market capitalization of UK£185m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Macfarlane Group Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.
The good news for Macfarlane Group shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Group Finance Director Ivor Gray bought UK£10.0k worth of shares at an average price of around UK£0.85.
Does Macfarlane Group Deserve A Spot On Your Watchlist?
As I already mentioned, Macfarlane Group is a growing business, which is what I like to see. Not every business can grow its EPS, but Macfarlane Group certainly can. The icing on the cake is that an insider bought shares during the year, which inclines me to put this one on a watchlist. We should say that we've discovered 1 warning sign for Macfarlane Group that you should be aware of before investing here.
As a growth investor I do like to see insider buying. But Macfarlane 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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