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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and 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 Malibu Boats (NASDAQ:MBUU), 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. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Malibu Boats's Earnings Per Share Are Growing.
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. Who among us would not applaud Malibu Boats's stratospheric annual EPS growth of 42%, compound, over the last three years? While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.
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. While we note Malibu Boats's EBIT margins were flat over the last year, revenue grew by a solid 16% to US$729m. 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.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Malibu Boats's future profits.
Are Malibu Boats 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
While Malibu Boats insiders did net -US$572.8k selling stock over the last year, they invested US$961k, a much higher figure. You could argue that level of buying implies genuine confidence in the business. Zooming in, we can see that the biggest insider purchase was by CEO & Director Jack Springer for US$772k worth of shares, at about US$26.30 per share.
The good news, alongside the insider buying, for Malibu Boats bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$21m worth of shares. That's a lot of money, and no small incentive to work hard. Despite being just 1.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Should You Add Malibu Boats To Your Watchlist?
Malibu Boats's earnings per share have taken off like a rocket aimed right at the moon. 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 Malibu Boats belongs on the top of your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Malibu Boats , and understanding it should be part of your investment process.
The good news is that Malibu Boats 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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