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Here's Why We Think Viva Leisure (ASX:VVA) Is Well Worth Watching

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·4 min read
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily 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.

So if you're like me, you might be more interested in profitable, growing companies, like Viva Leisure (ASX:VVA). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Viva Leisure

Viva Leisure's Improving Profits

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So EPS growth can certainly encourage an investor to take note of a stock. You can imagine, then, that it almost knocked my socks off when I realized that Viva Leisure grew its EPS from AU$0.018 to AU$0.057, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an 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). Not all of Viva Leisure's revenue last year was revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Viva Leisure shareholders can take confidence from the fact that EBIT margins are up from 12% to 21%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

ASX:VVA Earnings and Revenue History June 27th 2020
ASX:VVA Earnings and Revenue History June 27th 2020

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 Viva Leisure?

Are Viva Leisure Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Any way you look at it Viva Leisure shareholders can gain quiet confidence from the fact that insiders shelled out AU$536k to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. We also note that it was the Independent Non Executive Director, Susan Forrester, who made the biggest single acquisition, paying AU$167k for shares at about AU$1.30 each.

On top of the insider buying, it's good to see that Viva Leisure insiders have a valuable investment in the business. Indeed, they hold AU$19m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 9.6% of the company, demonstrating a degree of high-level alignment with shareholders.

Should You Add Viva Leisure To Your Watchlist?

Viva Leisure's earnings have taken off like any random crypto-currency did, back in 2017. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest Viva Leisure belongs on the top of your watchlist. Before you take the next step you should know about the 3 warning signs for Viva Leisure (1 makes us a bit uncomfortable!) that we have uncovered.

The good news is that Viva Leisure 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.

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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