Do Australian Vintage's (ASX:AVG) Earnings Warrant Your Attention?

By
Simply Wall St
Published
May 10, 2021
ASX:AVG
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Australian Vintage (ASX:AVG). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Australian Vintage

Australian Vintage's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, Australian Vintage's EPS has grown 35% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. Australian Vintage shareholders can take confidence from the fact that EBIT margins are up from 7.4% to 10%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
ASX:AVG Earnings and Revenue History May 10th 2021

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Australian Vintage's forecast profits?

Are Australian Vintage 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. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

In the last year insider at Australian Vintage were both selling and buying shares; but happily, as a group they spent AU$216k more on stock, than they netted from selling it. Although I don't particularly like to see selling, the fact that they put more capital in, than they extracted, is a positive in my mind. We also note that it was the Non-Independent Non-Executive Director, Jiang Yuan, who made the biggest single acquisition, paying AU$307k for shares at about AU$0.61 each.

Along with the insider buying, another encouraging sign for Australian Vintage is that insiders, as a group, have a considerable shareholding. Indeed, they hold AU$34m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 17% of the company, demonstrating a degree of high-level alignment with shareholders.

Is Australian Vintage Worth Keeping An Eye On?

For growth investors like me, Australian Vintage's raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. Even so, be aware that Australian Vintage is showing 1 warning sign in our investment analysis , you should know about...

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