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We Ran A Stock Scan For Earnings Growth And Collins Foods (ASX:CKF) Passed With Ease

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·3 min read
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The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Collins Foods (ASX:CKF). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Collins Foods with the means to add long-term value to shareholders.

See our latest analysis for Collins Foods

How Fast Is Collins Foods 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) outcomes. That makes EPS growth an attractive quality for any company. We can see that in the last three years Collins Foods grew its EPS by 12% per year. That's a pretty good rate, if the company can sustain it.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Collins Foods maintained stable EBIT margins over the last year, all while growing revenue 11% to AU$1.2b. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
earnings-and-revenue-history

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 Collins Foods' future profits.

Are Collins Foods Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, 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.

Despite some Collins Foods insiders disposing of some shares, we note that there was AU$127k more in buying interest among those who know the company best On balance, that's a good sign. We also note that it was the MD, CEO & Director, Drew O’Malley, who made the biggest single acquisition, paying AU$166k for shares at about AU$11.13 each.

Along with the insider buying, another encouraging sign for Collins Foods is that insiders, as a group, have a considerable shareholding. Holding AU$84m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This should keep them focused on creating long term value for shareholders.

Should You Add Collins Foods To Your Watchlist?

As previously touched on, Collins Foods is a growing business, which is encouraging. Better yet, insiders are significant shareholders, and have been buying more shares. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. However, before you get too excited we've discovered 1 warning sign for Collins Foods that you should be aware of.

Keen growth investors love to see insider buying. Thankfully, Collins Foods 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.

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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