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 as Warren Buffett has mused, ‘If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.’ When they buy such story stocks, investors are all too often the patsy.
In contrast to all that, I prefer to spend time on companies like SW Umwelttechnik Stoiser & Wolschner (VIE:SWUT), which has not only revenues, but also profits. While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. 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.
SW Umwelttechnik Stoiser & Wolschner’s Improving Profits
In business, though not in life, profits are a key measure of success; and share prices tend to reflect 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 SW Umwelttechnik Stoiser & Wolschner grew its EPS from €0.73 to €4.19, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. SW Umwelttechnik Stoiser & Wolschner shareholders can take confidence from the fact that EBIT margins are up from 6.1% to 8.3%, and revenue is growing. That’s great to see, on both counts.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Since SW Umwelttechnik Stoiser & Wolschner is no giant, with a market capitalization of €10m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are SW Umwelttechnik Stoiser & Wolschner Insiders Aligned With All Shareholders?
Does SW Umwelttechnik Stoiser & Wolschner Deserve A Spot On Your Watchlist?
SW Umwelttechnik Stoiser & Wolschner’s earnings per share have taken off like a rocket aimed right at the moon. One of Buffett’s considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing SW Umwelttechnik Stoiser & Wolschner’s ROE with industry peers (and the market at large).
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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