Should You Be Adding Jumbo Interactive (ASX:JIN) To Your Watchlist Today?

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 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Jumbo Interactive (ASX:JIN). 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 Jumbo Interactive

How Fast Is Jumbo Interactive Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. We can see that in the last three years Jumbo Interactive grew its EPS by 12% per year. That growth rate is fairly good, assuming the company can keep it up.

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. Jumbo Interactive maintained stable EBIT margins over the last year, all while growing revenue 28% to AU$95m. 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.

Fortunately, we've got access to analyst forecasts of Jumbo Interactive's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Jumbo Interactive Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's good to see Jumbo Interactive insiders walking the walk, by spending AU$359k 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. We also note that it was the Founder, Mike Veverka, who made the biggest single acquisition, paying AU$166k for shares at about AU$16.49 each.

The good news, alongside the insider buying, for Jumbo Interactive bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold AU$52m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 4.7% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Does Jumbo Interactive Deserve A Spot On Your Watchlist?

As I already mentioned, Jumbo Interactive 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. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Jumbo Interactive that you should be aware of.

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