Does XRF Scientific (ASX:XRF) Deserve A Spot On Your Watchlist?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like XRF Scientific (ASX:XRF). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for XRF Scientific

How Fast Is XRF Scientific Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. XRF Scientific's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 41%. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

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. EBIT margins for XRF Scientific remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 28% to AU$40m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

XRF Scientific isn't a huge company, given its market capitalisation of AU$132m. That makes it extra important to check on its balance sheet strength.

Are XRF Scientific Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.

XRF Scientific insiders both bought and sold shares over the last twelve months, but they did end up spending AU$52k more on stock than they received from selling it. At face value we can consider this a fairly encouraging sign for the company. It is also worth noting that it was Non-Executive Director David Brown who made the biggest single purchase, worth AU$33k, paying AU$0.65 per share.

The good news, alongside the insider buying, for XRF Scientific bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold AU$31m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 24% of the company, demonstrating a degree of high-level alignment with shareholders.

Does XRF Scientific Deserve A Spot On Your Watchlist?

XRF Scientific's earnings per share have been soaring, with growth rates sky high. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe XRF Scientific deserves timely attention. You should always think about risks though. Case in point, we've spotted 2 warning signs for XRF Scientific you should be aware of.

The good news is that XRF Scientific 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. 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.