If You Like EPS Growth Then Check Out MCS Services (ASX:MSG) Before It's Too Late

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in MCS Services (ASX:MSG). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for MCS Services

MCS Services's Improving Profits

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. It is therefore awe-striking that MCS Services's EPS went from AU$0.00015 to AU$0.006 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?

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. The good news is that MCS Services is growing revenues, and EBIT margins improved by 3.6 percentage points to 3.7%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since MCS Services is no giant, with a market capitalization of AU$11m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are MCS Services Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Despite -AU$4.8k worth of sales, MCS Services insiders have overwhelmingly been buying the stock, spending AU$592k on purchases in the last twelve months. You could argue that level of buying implies genuine confidence in the business. We also note that it was the , Richard Batrachenko, who made the biggest single acquisition, paying AU$365k for shares at about AU$0.03 each.

And the insider buying isn't the only sign of alignment between shareholders and the board, since MCS Services insiders own more than a third of the company. Actually, with 43% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. Valued at only AU$11m MCS Services is really small for a listed company. So despite a large proportional holding, insiders only have AU$4.9m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Paul Simmons is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like MCS Services with market caps under AU$260m is about AU$368k.

MCS Services offered total compensation worth AU$253k to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add MCS Services To Your Watchlist?

MCS Services's earnings have taken off like any random crypto-currency did, back in 2017. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest MCS Services belongs on the top of your watchlist. Still, you should learn about the 2 warning signs we've spotted with MCS Services (including 1 which is significant) .

As a growth investor I do like to see insider buying. But MCS Services isn't the only one. You can see a 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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This article by Simply Wall St is general in nature. 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.
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