Does Integral Diagnostics (ASX:IDX) Deserve A Spot On Your Watchlist?

By
Simply Wall St
Published
September 13, 2021
ASX:IDX
Source: Shutterstock

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 the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Integral Diagnostics (ASX:IDX). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Integral Diagnostics

How Fast Is Integral Diagnostics Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Over the last three years, Integral Diagnostics has grown EPS by 16% per year. That's a good rate of growth, if it can be sustained.

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 we note Integral Diagnostics's EBIT margins were flat over the last year, revenue grew by a solid 26% to AU$315m. That's progress.

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:IDX Earnings and Revenue History September 13th 2021

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Integral Diagnostics?

Are Integral Diagnostics Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Integral Diagnostics shares worth a considerable sum. To be specific, they have AU$50m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 4.7% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is Integral Diagnostics Worth Keeping An Eye On?

One important encouraging feature of Integral Diagnostics is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. You should always think about risks though. Case in point, we've spotted 2 warning signs for Integral Diagnostics you should be aware of.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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