Here's Why Smart Parking (ASX:SPZ) Has Caught The Eye Of Investors

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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Smart Parking (ASX:SPZ), which has not only revenues, but also profits. While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Check out our latest analysis for Smart Parking

How Fast Is Smart Parking Growing Its Earnings Per Share?

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It is awe-striking that Smart Parking's EPS went from AU$0.0027 to AU$0.018 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. Could this be a sign that the business has reached an inflection point?

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Smart Parking shareholders can take confidence from the fact that EBIT margins are up from 11% to 14%, and revenue is growing. That's great to see, on both counts.

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.

Since Smart Parking is no giant, with a market capitalisation of AU$140m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Smart Parking Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The good news for Smart Parking shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that Fiona Pearse, the Independent Non-Executive Director of the company, paid AU$38k for shares at around AU$0.22 each. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Smart Parking.

Should You Add Smart Parking To Your Watchlist?

Smart Parking's earnings per share have been soaring, with growth rates sky high. Most growth-seeking investors will find it hard to ignore that sort of explosive EPS growth. And may very well signal a significant inflection point for the business. If that's the case, you may regret neglecting to put Smart Parking on your watchlist. You should always think about risks though. Case in point, we've spotted 2 warning signs for Smart Parking you should be aware of, and 1 of them doesn't sit too well with us.

Keen growth investors love to see insider buying. Thankfully, Smart Parking isn't the only one. You can see a a curated list of Australian companies which have exhibited consistent growth accompanied by recent insider buying.

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. 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.