Here's Why We Think Southern Cross Electrical Engineering (ASX:SXE) 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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Southern Cross Electrical Engineering (ASX:SXE). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for Southern Cross Electrical Engineering
How Fast Is Southern Cross Electrical Engineering Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Southern Cross Electrical Engineering grew its EPS by 6.4% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
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. While we note Southern Cross Electrical Engineering achieved similar EBIT margins to last year, revenue grew by a solid 14% to AU$556m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Southern Cross Electrical Engineering isn't a huge company, given its market capitalisation of AU$175m. That makes it extra important to check on its balance sheet strength.
Are Southern Cross Electrical Engineering Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Southern Cross Electrical Engineering top brass are certainly in sync, not having sold any shares, over the last year. But the real excitement comes from the AU$85k that Independent Non-Executive Director Karl Paganin spent buying shares (at an average price of about AU$0.64). It seems at least one insider has seen potential in the company's future - and they're willing to put money on the line.
Along with the insider buying, another encouraging sign for Southern Cross Electrical Engineering is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at AU$40m. This considerable investment should help drive long-term value in the business. That amounts to 23% of the company, demonstrating a degree of high-level alignment with shareholders.
Does Southern Cross Electrical Engineering Deserve A Spot On Your Watchlist?
One positive for Southern Cross Electrical Engineering 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. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. It is worth noting though that we have found 1 warning sign for Southern Cross Electrical Engineering that you need to take into consideration.
The good news is that Southern Cross Electrical Engineering is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
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.
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