I Ran A Stock Scan For Earnings Growth And 8VI Holdings (ASX:8VI) Passed With Ease

By
Simply Wall St
Published
October 04, 2021
ASX:8VI
Source: Shutterstock

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. 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.

In contrast to all that, I prefer to spend time on companies like 8VI Holdings (ASX:8VI), 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. 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 8VI Holdings

8VI Holdings's Improving Profits

In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that 8VI Holdings grew its EPS from S$0.026 to S$0.14, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. The good news is that 8VI Holdings is growing revenues, and EBIT margins improved by 17.3 percentage points to 25%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

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.

earnings-and-revenue-history
ASX:8VI Earnings and Revenue History October 4th 2021

8VI Holdings isn't a huge company, given its market capitalization of AU$227m. That makes it extra important to check on its balance sheet strength.

Are 8VI Holdings 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The good news for 8VI Holdings shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Executive Director Puay Lin Teo bought S$25k worth of shares at an average price of around S$1.60.

The good news, alongside the insider buying, for 8VI Holdings bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold S$20m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 8.9% of the company, demonstrating a degree of high-level alignment with shareholders.

Is 8VI Holdings Worth Keeping An Eye On?

8VI Holdings's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest 8VI Holdings belongs on the top of your watchlist. We don't want to rain on the parade too much, but we did also find 1 warning sign for 8VI Holdings that you need to be mindful of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of 8VI Holdings, 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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