Here's Why We Think SDI (ASX:SDI) Might Deserve Your Attention Today

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like SDI (ASX:SDI), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for SDI

How Quickly Is SDI Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, SDI has grown EPS by 15% per year. That's a pretty good rate, if the company can sustain it.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. SDI shareholders can take confidence from the fact that EBIT margins are up from 9.3% to 11%, and revenue is growing. Both of which are great metrics to check off for potential growth.

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

Since SDI is no giant, with a market capitalisation of AU$102m, you should definitely check its cash and debt before getting too excited about its prospects.

Are SDI Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. 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.

It's nice to see that there have been no reports of any insiders selling shares in SDI in the previous 12 months. With that in mind, it's heartening that John Slaviero, the CFO, COO of the company, paid AU$26k for shares at around AU$0.82 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for SDI will reveal that insiders own a significant piece of the pie. Indeed, with a collective holding of 56%, company insiders are in control and have plenty of capital behind the venture. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. With that sort of holding, insiders have about AU$57m riding on the stock, at current prices. So there's plenty there to keep them focused!

Is SDI Worth Keeping An Eye On?

One positive for SDI is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for SDI that you should be aware of.

The good news is that SDI is not the only stock with insider buying. Here's a list of small cap, undervalued companies in AU 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. 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.

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