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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. 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 Croma Security Solutions Group (LON:CSSG). While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Croma Security Solutions Group's Improving Profits
In the last three years Croma Security Solutions Group'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 the last firework on New Year's Eve accelerating into the sky, Croma Security Solutions Group's EPS shot from UK£0.059 to UK£0.10, over the last year. You don't see 72% year-on-year growth like that, very often.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Croma Security Solutions Group maintained stable EBIT margins over the last year, all while growing revenue 27% to UK£36m. That's progress.
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.
Since Croma Security Solutions Group is no giant, with a market capitalization of UK£15m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Croma Security Solutions Group Insiders Aligned With All Shareholders?
Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So we're pleased to report that Croma Security Solutions Group insiders own a meaningful share of the business. Actually, with 38% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. Of course, Croma Security Solutions Group is a very small company, with a market cap of only UK£15m. That means insiders only have UK£5.7m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!
Is Croma Security Solutions Group Worth Keeping An Eye On?
Croma Security Solutions Group's earnings per share have taken off like a rocket aimed right at the moon. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it's worth considering Croma Security Solutions Group for a spot on your watchlist. Of course, just because Croma Security Solutions Group is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Although Croma Security Solutions Group certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.