Should You Be Adding Prime Financial Group (ASX:PFG) To Your Watchlist Today?

By
Simply Wall St
Published
May 24, 2021
ASX:PFG
Source: Shutterstock

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 completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Prime Financial Group (ASX:PFG). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for Prime Financial Group

How Fast Is Prime Financial Group Growing Its Earnings Per Share?

Over the last three years, Prime Financial Group has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Like a firecracker arcing through the night sky, Prime Financial Group's EPS shot from AU$0.0069 to AU$0.014, over the last year. You don't see 108% year-on-year growth like that, very often.

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. Prime Financial Group's EBIT margins have actually improved by 7.8 percentage points in the last year, to reach 21%, but, on the flip side, revenue was down 2.8%. That's not ideal.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

earnings-and-revenue-history
ASX:PFG Earnings and Revenue History May 25th 2021

Prime Financial Group isn't a huge company, given its market capitalization of AU$18m. That makes it extra important to check on its balance sheet strength.

Are Prime Financial Group Insiders Aligned With All Shareholders?

Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So we're pleased to report that Prime Financial Group insiders own a meaningful share of the business. In fact, they own 46% of the shares, making insiders a very influential shareholder group. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Valued at only AU$18m Prime Financial Group is really small for a listed company. So despite a large proportional holding, insiders only have AU$8.1m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

Does Prime Financial Group Deserve A Spot On Your Watchlist?

Prime Financial Group's earnings have taken off like any random crypto-currency did, back in 2017. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind Prime Financial Group is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. You still need to take note of risks, for example - Prime Financial Group has 2 warning signs we think you should be aware of.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access 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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