Is Now The Time To Put Australian Foundation Investment (ASX:AFI) On Your Watchlist?
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
In contrast to all that, many investors prefer to focus on companies like Australian Foundation Investment (ASX:AFI), which has not only revenues, but also profits. 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.
Check out our latest analysis for Australian Foundation Investment
How Fast Is Australian Foundation Investment Growing?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Australian Foundation Investment managed to grow EPS by 5.4% per year, over three years. This may not be setting the world alight, but it does show that EPS is on the upwards trend.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Our analysis has highlighted that Australian Foundation Investment's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. While we note Australian Foundation Investment achieved similar EBIT margins to last year, revenue grew by a solid 25% to AU$410m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Australian Foundation Investment's balance sheet strength, before getting too excited.
Are Australian Foundation Investment Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Any way you look at it Australian Foundation Investment shareholders can gain quiet confidence from the fact that insiders shelled out AU$434k to buy stock, over the last year. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. Zooming in, we can see that the biggest insider purchase was by Independent Non Executive Director Craig Drummond for AU$363k worth of shares, at about AU$7.27 per share.
It's reassuring that Australian Foundation Investment insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. Namely, Australian Foundation Investment has a very reasonable level of CEO pay. The median total compensation for CEOs of companies similar in size to Australian Foundation Investment, with market caps between AU$6.0b and AU$18b, is around AU$3.8m.
Australian Foundation Investment's CEO took home a total compensation package of AU$1.6m in the year prior to June 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add Australian Foundation Investment To Your Watchlist?
As previously touched on, Australian Foundation Investment is a growing business, which is encouraging. And there's more to love too, with modest CEO remuneration and insider buying interest continuing the positives for the company. If these factors aren't enough to secure Australian Foundation Investment a spot on the watchlist, then it certainly warrants a closer look at the very least. Before you take the next step you should know about the 1 warning sign for Australian Foundation Investment that we have uncovered.
The good news is that Australian Foundation Investment 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.
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