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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
So if you're like me, you might be more interested in profitable, growing companies, like Mastermyne Group (ASX:MYE). 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. 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 Mastermyne Group Growing Its Earnings Per Share?
In the last three years Mastermyne Group'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 falcon taking flight, Mastermyne Group's EPS soared from AU$0.056 to AU$0.089, over the last year. That's a impressive gain of 58%.
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). Mastermyne Group maintained stable EBIT margins over the last year, all while growing revenue 22% to AU$254m. 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.
Mastermyne Group isn't a huge company, given its market capitalization of AU$71m. That makes it extra important to check on its balance sheet strength.
Are Mastermyne Group 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, small purchases are not always indicative of conviction, and insiders don't always get it right.
We haven't seen any insiders selling Mastermyne Group shares, in the last year. So it's definitely nice that Independent Non-Executive Director Julie Whitcombe bought AU$38k worth of shares at an average price of around AU$0.61.
On top of the insider buying, we can also see that Mastermyne Group insiders own a large chunk of the company. Actually, with 39% of the company to their names, insiders are profoundly invested in the business. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. With that sort of holding, insiders have about AU$27m riding on the stock, at current prices. That's nothing to sneeze at!
Should You Add Mastermyne Group To Your Watchlist?
For growth investors like me, Mastermyne Group's raw rate of earnings growth is a beacon in the night. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. Still, you should learn about the 3 warning signs we've spotted with Mastermyne Group .
As a growth investor I do like to see insider buying. But Mastermyne 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.
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