Stock Analysis

Should You Be Adding HiTech Group Australia (ASX:HIT) To Your Watchlist Today?

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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 as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

So if you're like me, you might be more interested in profitable, growing companies, like HiTech Group Australia (ASX:HIT). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for HiTech Group Australia

How Fast Is HiTech Group Australia Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, HiTech Group Australia has grown EPS by 10% per year. That's a pretty good rate, if the company can sustain it.

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 HiTech Group Australia's EBIT margins were flat over the last year, revenue grew by a solid 10% to AU$33m. 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:HIT Earnings and Revenue History December 31st 2020

Since HiTech Group Australia is no giant, with a market capitalization of AU$68m, so you should definitely check its cash and debt before getting too excited about its prospects.

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 we're pleased to report that HiTech Group Australia insiders own a meaningful share of the business. In fact, they own 74% 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$51m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Is HiTech Group Australia Worth Keeping An Eye On?

One important encouraging feature of HiTech Group Australia is that it is growing profits. 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 2 warning signs we've spotted with HiTech Group Australia .

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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