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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Enlabs (STO:NLAB). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
View our latest analysis for Enlabs
How Fast Is Enlabs Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It’s no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that Enlabs has managed to grow EPS by 31% per year over three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.
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. Enlabs maintained stable EBIT margins over the last year, all while growing revenue 32% to €40m. That’s a real positive.
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.
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 Enlabs’s future profits.
Are Enlabs Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.
We do note that Enlabs insiders netted -€441.4k worth of shares over the last year. On the other hand, Independent Director Ludwig Pettersson paid €577k for shares, at a price of about €21.49 per share. So, on balance, that’s positive.
The good news, alongside the insider buying, for Enlabs bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold €180m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 19% of the company, demonstrating a degree of high-level alignment with shareholders.
Does Enlabs Deserve A Spot On Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Enlabs’s strong EPS growth. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So it’s fair to say I think this stock may well deserve a spot on your watchlist. Even so, be aware that Enlabs is showing 2 warning signs in our investment analysis , you should know about…
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Enlabs, you’ll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
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