Here's Why I Think Austco Healthcare (ASX:AHC) Might Deserve Your Attention Today

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Austco Healthcare (ASX:AHC). 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.

See our latest analysis for Austco Healthcare

How Fast Is Austco Healthcare Growing Its Earnings Per Share?

In the last three years Austco Healthcare's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Austco Healthcare has grown its trailing twelve month EPS from AU$0.0081 to AU$0.0088, in the last year. That's a modest gain of 8.7%.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). To cut to the chase Austco Healthcare's EBIT margins dropped last year, and so did its revenue. That is, not a hint of euphemism here, suboptimal.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Since Austco Healthcare is no giant, with a market capitalization of AU$26m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Austco Healthcare Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We haven't seen any insiders selling Austco Healthcare shares, in the last year. So it's definitely nice that CEO & Executive Director Clayton Astles bought AU$28k worth of shares at an average price of around AU$0.08.

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. In fact, they own 49% of the shares, making insiders a very influential shareholder group. 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$26m Austco Healthcare is really small for a listed company. That means insiders only have AU$13m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!

Does Austco Healthcare Deserve A Spot On Your Watchlist?

One important encouraging feature of Austco Healthcare is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. However, before you get too excited we've discovered 2 warning signs for Austco Healthcare (1 is a bit concerning!) that you should be aware of.

The good news is that Austco Healthcare is not the only growth stock with insider buying. Here's a list of them... with 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. 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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