It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.
In contrast to all that, I prefer to spend time on companies like Volex (LON:VLX), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Fast Is Volex Growing Its Earnings Per Share?
Over the last three years, Volex has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a wedge-tailed eagle on the wind, Volex's EPS soared from US$0.094 to US$0.15, in just one year. That's a commendable gain of 58%.
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. Volex maintained stable EBIT margins over the last year, all while growing revenue 3.3% to US$398m. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Volex EPS 100% free.
Are Volex 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
We do note that, in the last year, insiders sold -US$206k worth of shares. But that's far less than the US$1.4m insiders spend purchasing stock. This makes me even more interested in Volex because it suggests that those who understand the company best, are optimistic. We also note that it was the Executive Chairman, Nathaniel Philip Victor Rothschild, who made the biggest single acquisition, paying UK£825k for shares at about UK£1.65 each.
Along with the insider buying, another encouraging sign for Volex is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth US$132m. Coming in at 26% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
Should You Add Volex To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Volex's strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So I do think this is one stock worth watching. Before you take the next step you should know about the 1 warning sign for Volex that we have uncovered.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Volex, you'll probably love this free list of growing companies that insiders are buying.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.