Stock Analysis

Does HiTech Group Australia (ASX:HIT) Deserve A Spot On Your Watchlist?

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ASX:HIT
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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 completely 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.

So if you're like me, you might be more interested in profitable, growing companies, like HiTech Group Australia (ASX:HIT). 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.

See our latest analysis for HiTech Group Australia

How Quickly Is HiTech Group Australia Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. HiTech Group Australia managed to grow EPS by 13% per year, over three years. That's a pretty good rate, if the company can sustain it.

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). While we note HiTech Group Australia's EBIT margins were flat over the last year, revenue grew by a solid 14% to AU$36m. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
ASX:HIT Earnings and Revenue History April 18th 2021

HiTech Group Australia isn't a huge company, given its market capitalization of AU$74m. That makes it extra important to check on its balance sheet strength.

Are HiTech Group Australia Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that HiTech Group Australia insiders own a significant number of shares certainly appeals to me. In fact, they own 75% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. With that sort of holding, insiders have about AU$55m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add HiTech Group Australia To Your Watchlist?

As I already mentioned, HiTech Group Australia is a growing business, which is what I like to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. Still, you should learn about the 4 warning signs we've spotted with HiTech Group Australia (including 1 which doesn't sit too well with us) .

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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