I Ran A Stock Scan For Earnings Growth And Advanced Braking Technology (ASX:ABV) Passed With Ease
Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
So if you're like me, you might be more interested in profitable, growing companies, like Advanced Braking Technology (ASX:ABV). 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.
See our latest analysis for Advanced Braking Technology
Advanced Braking Technology's Improving Profits
In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that Advanced Braking Technology grew its EPS from AU$0.00049 to AU$0.0016, in one short 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.
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. Advanced Braking Technology maintained stable EBIT margins over the last year, all while growing revenue 16% to AU$9.7m. That's a real positive.
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 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, small purchases are not always indicative of conviction, and insiders don't always get it right.
Insider selling of Advanced Braking Technology shares was insignificant compared to the one buyer, over the last twelve months. Specifically the , Keith Knowles, spent AU$720k, paying about AU$0.039 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. In fact, they own 46% of the shares, making insiders a very influential shareholder group. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Of course, Advanced Braking Technology is a very small company, with a market cap of only AU$14m. That means insiders only have AU$6.3m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.
Does Advanced Braking Technology Deserve A Spot On Your Watchlist?
Advanced Braking Technology's earnings have taken off like any random crypto-currency did, back in 2017. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Advanced Braking Technology deserves timely attention. You still need to take note of risks, for example - Advanced Braking Technology has 3 warning signs we think you should be aware of.
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.
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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