If EPS Growth Is Important To You, McMillan Shakespeare (ASX:MMS) Presents An Opportunity

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 currently 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. 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 McMillan Shakespeare (ASX:MMS). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

McMillan Shakespeare's Earnings Per Share Are Growing

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Over the last three years, McMillan Shakespeare has grown EPS by 17% per year. That's a good rate of growth, if it can be sustained.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of McMillan Shakespeare's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. EBIT margins for McMillan Shakespeare remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 8.1% to AU$563m. That's a real positive.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

See our latest analysis for McMillan Shakespeare

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for McMillan Shakespeare's future profits.

Are McMillan Shakespeare Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that McMillan Shakespeare insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at AU$69m. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 6.2% of the shares on issue for the business, an appreciable amount considering the market cap.

Should You Add McMillan Shakespeare To Your Watchlist?

One important encouraging feature of McMillan Shakespeare is that it is growing profits. To add an extra spark to the fire, significant insider ownership in the company is another highlight. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. It is worth noting though that we have found 3 warning signs for McMillan Shakespeare that you need to take into consideration.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in AU with promising growth potential and insider confidence.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.