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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In contrast to all that, I prefer to spend time on companies like Investis Holding (VTX:IREN), which has not only revenues, but also profits. While profit is not necessarily a social good, it’s easy to admire a business that can consistently produce it. 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 Investis Holding Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). It’s no surprise, then, that I like to invest in companies with EPS growth. I, for one, am blown away by the fact that Investis Holding has grown EPS by 52% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.
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). Unfortunately, Investis Holding’s revenue dropped 5.1% last year, but the silver lining is that EBIT margins improved from 19% to 24%. That falls short of ideal.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
While it’s always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Investis Holding’s balance sheet strength, before getting too excited.
Are Investis Holding Insiders Aligned With All Shareholders?
Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So as you can imagine, the fact that Investis Holding insiders own a significant number of shares certainly appeals to me. Indeed, with a collective holding of 78%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. And their holding is extremely valuable at the current share price, totalling CHF828m. That means they have plenty of their own capital riding on the performance of the business!
Does Investis Holding Deserve A Spot On Your Watchlist?
Investis Holding’s earnings per share have taken off like a rocket aimed right at the moon. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So to my mind Investis Holding is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Still, you should learn about the 3 warning signs we’ve spotted with Investis Holding (including 1 which can’t be ignored) .
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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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