Here's Why I Think Vmoto (ASX:VMT) Is An Interesting Stock

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

So if you're like me, you might be more interested in profitable, growing companies, like Vmoto (ASX:VMT). 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.

View our latest analysis for Vmoto

Vmoto's Improving Profits

In the last three years Vmoto's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like the last firework on New Year's Eve accelerating into the sky, Vmoto's EPS shot from AU$0.0062 to AU$0.015, over the last year. Year on year growth of 141% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.

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). The good news is that Vmoto is growing revenues, and EBIT margins improved by 3.8 percentage points to 4.5%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Since Vmoto is no giant, with a market capitalization of AU$127m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Vmoto 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 Vmoto insiders own a significant number of shares certainly appeals to me. Actually, with 38% of the company to their names, insiders are profoundly invested in the business. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. In terms of absolute value, insiders have AU$48m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Vmoto To Your Watchlist?

Vmoto's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind Vmoto is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. It is worth noting though that we have found 2 warning signs for Vmoto that you need to take into consideration.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

If you decide to trade Vmoto, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.