Does Austco Healthcare (ASX:AHC) Deserve A Spot On Your Watchlist?

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.

In contrast to all that, I prefer to spend time on companies like Austco Healthcare (ASX:AHC), which has not only revenues, but also profits. 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. 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.

Check out our latest analysis for Austco Healthcare

How Fast Is Austco Healthcare Growing Its Earnings Per Share?

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that Austco Healthcare grew its EPS from AU$0.0028 to AU$0.0095, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement.

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. While revenue is looking a bit flat, the good news is EBIT margins improved by 4.0 percentage points to 4.1%, in the last twelve months. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Austco Healthcare isn't a huge company, given its market capitalization of AU$28m. That makes it extra important to check on its balance sheet strength.

Are Austco Healthcare 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

In the last twelve months Austco Healthcare insiders spent AU$38k on stock; good news for shareholders. While this isn't much, we also note an absence of sales. We also note that it was the CEO & Executive Director, Clayton Astles, who made the biggest single acquisition, paying AU$28k for shares at about AU$0.08 each.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Austco Healthcare insiders own more than a third of the company. Actually, with 49% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. Valued at only AU$28m Austco Healthcare is really small for a listed company. That means insiders only have AU$14m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Does Austco Healthcare Deserve A Spot On Your Watchlist?

Austco Healthcare's earnings have taken off like any random crypto-currency did, back in 2017. What's more insiders own a significant stake in the company and have been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest Austco Healthcare belongs on the top of your watchlist. You should always think about risks though. Case in point, we've spotted 2 warning signs for Austco Healthcare you should be aware of.

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