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Is Now The Time To Put Advanced Braking Technology (ASX:ABV) On Your Watchlist?

·4 min read

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In contrast to all that, I prefer to spend time on companies like Advanced Braking Technology (ASX:ABV), 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.

View our latest analysis for Advanced Braking Technology

How Fast Is Advanced Braking Technology Growing Its Earnings Per Share?

In the last three years Advanced Braking Technology'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, Advanced Braking Technology's EPS soared from AU$0.0011 to AU$0.0014, over the last year. That's a commendable gain of 26%.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Advanced Braking Technology maintained stable EBIT margins over the last year, all while growing revenue 17% to AU$10m. 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.

earnings-and-revenue-history
earnings-and-revenue-history

Since Advanced Braking Technology is no giant, with a market capitalization of AU$14m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Advanced Braking Technology 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.

While we did see insider selling of Advanced Braking Technology stock in the last year, one single insider spent plenty more buying. To wit, Keith Knowles outlaid AU$1.1m for shares, at about AU$0.036 per share. That certainly pricks my ears up.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Advanced Braking Technology insiders own more than a third of the company. Indeed, with a collective holding of 62%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. Of course, Advanced Braking Technology is a very small company, with a market cap of only AU$14m. So despite a large proportional holding, insiders only have AU$8.7m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

Should You Add Advanced Braking Technology To Your Watchlist?

For growth investors like me, Advanced Braking Technology's raw rate of earnings growth is a beacon in the night. Better still, insiders own a large chunk of the company and one has even been buying more shares. So I do think this is one stock worth watching. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Advanced Braking Technology , and understanding these should be part of your investment process.

The good news is that Advanced Braking Technology 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.