Stock Analysis

We Ran A Stock Scan For Earnings Growth And Advanced Braking Technology (ASX:ABV) Passed With Ease

ASX:ABV
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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 currently 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Advanced Braking Technology (ASX:ABV). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for Advanced Braking Technology

How Fast Is Advanced Braking Technology Growing Its Earnings Per Share?

Advanced Braking Technology has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. To the delight of shareholders, Advanced Braking Technology's EPS soared from AU$0.0011 to AU$0.0014, over the last year. That's a impressive gain of 26%.

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. While we note Advanced Braking Technology achieved similar EBIT margins to last year, revenue grew by a solid 17% to AU$10m. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
ASX:ABV Earnings and Revenue History August 29th 2022

Advanced Braking Technology isn't a huge company, given its market capitalisation of AU$11m. That makes it extra important to check on its balance sheet strength.

Are Advanced Braking Technology 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

While we did see insider selling of Advanced Braking Technology stock in the last year, one single insider spent plenty more buying. Specifically the company insider, Keith Knowles, spent AU$751k, paying about AU$0.033 per share. It's hard to ignore news like that.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Advanced Braking Technology insiders own more than a third of the company. To be exact, company insiders hold 63% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. Of course, Advanced Braking Technology is a very small company, with a market cap of only AU$11m. That means insiders only have AU$6.7m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Should You Add Advanced Braking Technology To Your Watchlist?

You can't deny that Advanced Braking Technology has grown its earnings per share at a very impressive rate. That's attractive. Better still, insiders own a large chunk of the company and one has even been buying more shares. Astute investors will want to keep this stock on watch. What about risks? Every company has them, and we've spotted 3 warning signs for Advanced Braking Technology (of which 1 is concerning!) you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Advanced Braking Technology, 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.

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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.