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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Hubify (ASX:HFY). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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 Hubify Growing Its Earnings Per Share?
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. It is therefore awe-striking that Hubify's EPS went from AU$0.0022 to AU$0.0076 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
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. Hubify maintained stable EBIT margins over the last year, all while growing revenue 30% to AU$16m. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
Since Hubify is no giant, with a market capitalization of AU$39m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Hubify Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
One positive for Hubify, is that company insiders paid AU$30k for shares in the last year. While this isn't much, we also note an absence of sales. We also note that it was the Independent Non-Executive Director, Charbel Nader, who made the biggest single acquisition, paying AU$10k for shares at about AU$0.088 each.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Hubify insiders own more than a third of the company. In fact, they own 73% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have AU$28m invested in the business, using the current share price. That's nothing to sneeze at!
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Victor Tsaccounis, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Hubify with market caps under AU$263m is about AU$381k.
Hubify offered total compensation worth AU$297k to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Does Hubify Deserve A Spot On Your Watchlist?
Hubify's earnings per share have taken off like a rocket aimed right at the moon. What's more insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Hubify deserves timely attention. However, before you get too excited we've discovered 4 warning signs for Hubify that you should be aware of.
As a growth investor I do like to see insider buying. But Hubify isn't the only one. You can see a a free list of them here.
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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