Do Australian Wealth Advisors Group's (ASX:WAG) Earnings Warrant Your Attention?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Australian Wealth Advisors Group (ASX:WAG). 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.

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Australian Wealth Advisors Group's Improving Profits

Even when EPS earnings per share (EPS) growth is unexceptional, company value can be created if this rate is sustained each year. So it's easy to see why many investors focus in on EPS growth. Australian Wealth Advisors Group's EPS shot up from AU$0.0035 to AU$0.0053; a result that's bound to keep shareholders happy. That's a fantastic gain of 51%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note Australian Wealth Advisors Group achieved similar EBIT margins to last year, revenue grew by a solid 32% to AU$12m. That's a real positive.

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.

See our latest analysis for Australian Wealth Advisors Group

Australian Wealth Advisors Group isn't a huge company, given its market capitalisation of AU$28m. That makes it extra important to check on its balance sheet strength.

Are Australian Wealth Advisors Group 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We note that Australian Wealth Advisors Group insiders spent AU$184k on stock, over the last year; in contrast, we didn't see any selling. That paints the company in a nice light, as it signals that its leaders are feeling confident in where the company is heading. Zooming in, we can see that the biggest insider purchase was by Executive Chairman Lee Darion IaFraté for AU$72k worth of shares, at about AU$0.29 per share.

On top of the insider buying, we can also see that Australian Wealth Advisors Group insiders own a large chunk of the company. In fact, they own 54% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Although, with Australian Wealth Advisors Group being valued at AU$28m, this is a small company we're talking about. So this large proportion of shares owned by insiders only amounts to AU$15m. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Does Australian Wealth Advisors Group Deserve A Spot On Your Watchlist?

You can't deny that Australian Wealth Advisors Group has grown its earnings per share at a very impressive rate. That's attractive. Furthermore, company insiders have been adding to their significant stake in the company. So it's fair to say that this stock may well deserve a spot on your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Australian Wealth Advisors Group (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Australian Wealth Advisors Group, you'll probably love this curated collection of companies in AU that have an attractive valuation alongside insider buying in the last three months.

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.