I Ran A Stock Scan For Earnings Growth And Verbrec (ASX:VBC) Passed With Ease

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In contrast to all that, I prefer to spend time on companies like Verbrec (ASX:VBC), 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Verbrec

Verbrec's Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Like a firecracker arcing through the night sky, Verbrec's EPS shot from AU$0.0039 to AU$0.0096, over the last year. You don't see 144% year-on-year growth like that, very often.

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. Verbrec maintained stable EBIT margins over the last year, all while growing revenue 23% to AU$100m. That's a real positive.

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

Since Verbrec is no giant, with a market capitalization of AU$35m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Verbrec Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

In the last year insider at Verbrec were both selling and buying shares; but happily, as a group they spent AU$239k more on stock, than they netted from selling it. On balance, that's a good sign. We also note that it was the , Andrew Horstmann, who made the biggest single acquisition, paying AU$200k for shares at about AU$0.16 each.

On top of the insider buying, we can also see that Verbrec insiders own a large chunk of the company. Actually, with 44% 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. Valued at only AU$35m Verbrec is really small for a listed company. That means insiders only have AU$15m 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.

Is Verbrec Worth Keeping An Eye On?

Verbrec's earnings have taken off like any random crypto-currency did, back in 2017. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest Verbrec belongs on the top of your watchlist. Even so, be aware that Verbrec is showing 3 warning signs in our investment analysis , you should know about...

The good news is that Verbrec is not the only growth stock with insider buying. Here's a list of them... 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.

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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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