Stock Analysis

Is Now The Time To Put Mader Group (ASX:MAD) On Your Watchlist?

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ASX:MAD
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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In contrast to all that, I prefer to spend time on companies like Mader Group (ASX:MAD), 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. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

See our latest analysis for Mader Group

How Fast Is Mader Group Growing Its Earnings Per Share?

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Mader Group has grown its trailing twelve month EPS from AU$0.081 to AU$0.088, in the last year. That amounts to a small improvement of 8.7%.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Mader Group maintained stable EBIT margins over the last year, all while growing revenue 12% to AU$282m. That's a real positive.

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:MAD Earnings and Revenue History June 15th 2021

Mader Group isn't a huge company, given its market capitalization of AU$184m. That makes it extra important to check on its balance sheet strength.

Are Mader Group Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's good to see Mader Group insiders walking the walk, by spending AU$597k on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. Zooming in, we can see that the biggest insider purchase was by Executive Director Luke Mader for AU$332k worth of shares, at about AU$0.85 per share.

On top of the insider buying, we can also see that Mader Group insiders own a large chunk of the company. Indeed, with a collective holding of 78%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. In terms of absolute value, insiders have AU$143m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Justin Nuich, is paid less than the median for similar sized companies. For companies with market capitalizations under AU$260m, like Mader Group, the median CEO pay is around AU$368k.

The CEO of Mader Group was paid just AU$60k in total compensation for the year ending . This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Mader Group To Your Watchlist?

As I already mentioned, Mader Group is a growing business, which is what I like to see. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Before you take the next step you should know about the 2 warning signs for Mader Group that we have uncovered.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Mader Group, you'll probably love this free list of growing companies that insiders are buying.

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

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