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.’
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Franchise Brands (LON:FRAN). While profit is not necessarily a social good, it’s easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Check out our latest analysis for Franchise Brands
Franchise Brands’s Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. I, for one, am blown away by the fact that Franchise Brands has grown EPS by 39% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Franchise Brands’s EBIT margins were flat over the last year, revenue grew by a solid 24% to UK£44m. That’s progress.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Franchise Brands isn’t a huge company, given its market capitalization of UK£89m. That makes it extra important to check on its balance sheet strength.
Are Franchise Brands Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
We note that Franchise Brands insiders spent UK£42k on stock, over the last year; in contrast, we didn’t see any selling. That puts the company in a nice light, as it makes me think its leaders are feeling confident. It is also worth noting that it was Chief Information Officer & Director Colin Rees who made the biggest single purchase, worth UK£30k, paying UK£1.19 per share.
On top of the insider buying, we can also see that Franchise Brands insiders own a large chunk of the company. In fact, they own 54% 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. With that sort of holding, insiders have about UK£48m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!
Does Franchise Brands Deserve A Spot On Your Watchlist?
Franchise Brands’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 Franchise Brands deserves timely attention. Before you take the next step you should know about the 2 warning signs for Franchise Brands that we have uncovered.
As a growth investor I do like to see insider buying. But Franchise Brands 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.
If you spot an error that warrants correction, please contact the editor at [email protected] 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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