Stock Analysis

With EPS Growth And More, Healthia (ASX:HLA) Is Interesting

ASX:HLA
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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. 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.

In contrast to all that, I prefer to spend time on companies like Healthia (ASX:HLA), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for Healthia

Healthia's Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. You can imagine, then, that it almost knocked my socks off when I realized that Healthia grew its EPS from AU$0.0045 to AU$0.10, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an 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. On the one hand, Healthia's EBIT margins fell over the last year, but on the other hand, revenue grew. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
ASX:HLA Earnings and Revenue History April 4th 2021

Healthia isn't a huge company, given its market capitalization of AU$161m. That makes it extra important to check on its balance sheet strength.

Are Healthia 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Insiders both bought and sold Healthia shares in the last year, but the good news is they spent AU$55k more buying than they netted selling. When you weigh that up, it is a mild positive, indicating increased alignment between shareholders and management. It is also worth noting that it was Independent Non-Executive Director Paul Wilson who made the biggest single purchase, worth AU$95k, paying AU$1.60 per share.

On top of the insider buying, it's good to see that Healthia insiders have a valuable investment in the business. To be specific, they have AU$54m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 34% of the company, demonstrating a degree of high-level alignment with shareholders.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Wes Coote, is paid less than the median for similar sized companies. For companies with market capitalizations under AU$263m, like Healthia, the median CEO pay is around AU$377k.

The Healthia CEO received AU$313k in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Does Healthia Deserve A Spot On Your Watchlist?

Healthia'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. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Healthia deserves timely attention. We don't want to rain on the parade too much, but we did also find 4 warning signs for Healthia (1 is significant!) that you need to be mindful of.

The good news is that Healthia 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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