Here's Why We Think Australian Clinical Labs (ASX:ACL) Might Deserve Your Attention Today

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 Clinical Labs (ASX:ACL). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Australian Clinical Labs

Australian Clinical Labs' Improving Profits

Over the last three years, Australian Clinical Labs has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. Impressively, Australian Clinical Labs' EPS catapulted from AU$0.40 to AU$0.89, over the last year. It's not often a company can achieve year-on-year growth of 124%. The best case scenario? That the business has hit a true inflection point.

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. The good news is that Australian Clinical Labs is growing revenues, and EBIT margins improved by 7.7 percentage points to 28%, over the last year. Ticking those two boxes is a good sign of growth, in our 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.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Australian Clinical Labs' future profits.

Are Australian Clinical Labs 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Shareholders in Australian Clinical Labs will be more than happy to see insiders committing themselves to the company, spending AU$511k on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that there are brighter days ahead. It is also worth noting that it was CEO & Executive Director Melinda McGrath who made the biggest single purchase, worth AU$335k, paying AU$5.06 per share.

On top of the insider buying, it's good to see that Australian Clinical Labs insiders have a valuable investment in the business. As a matter of fact, their holding is valued at AU$45m. That's a lot of money, and no small incentive to work hard. Even though that's only about 4.6% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is Australian Clinical Labs Worth Keeping An Eye On?

Australian Clinical Labs' earnings have taken off in quite an impressive fashion. Just as heartening; insiders both own and are buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Australian Clinical Labs belongs near the top of your watchlist. Even so, be aware that Australian Clinical Labs is showing 2 warning signs in our investment analysis , and 1 of those is significant...

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.