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 . 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 OM Holdings (ASX:OMH). While profit is not necessarily a social good, it’s easy to admire a business than can consistently produce it. 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 OM Holdings
OM Holdings’s Improving Profits
In the last three years OM Holdings’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. Thus, it makes sense to focus on more recent growth rates, instead. Like the last firework on New Year’s Eve accelerating into the sky, OM Holdings’s EPS shot from AU$0.13 to AU$0.22, over the last year. You don’t see 74% year-on-year growth like that, very often.
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. OM Holdings shareholders can take confidence from the fact that EBIT margins are up from 13% to 16%, and revenue is growing. That’s great to see, on both counts.
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.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are OM Holdings Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company, if insiders also own shares, thusly more closely aligning our interests. So it is good to see that OM Holdings insiders have a significant amount of capital invested in the stock. Notably, they have an enormous stake in the company, worth AU$264m. That equates to 30% of the company, making insiders powerful and aligned with other shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
Should You Add OM Holdings To Your Watchlist?
OM Holdings’s earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it’s worth considering OM Holdings for a spot on your watchlist. Of course, just because OM Holdings is growing does not mean it is undervalued. If you’re wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.