Does Pact Group Holdings (ASX:PGH) Deserve A Spot On Your Watchlist?

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 Pact Group Holdings (ASX:PGH). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Pact Group Holdings

Pact Group Holdings's Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. Like a falcon taking flight, Pact Group Holdings's EPS soared from AU$0.19 to AU$0.30, over the last year. That's a commendable gain of 60%.

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. Pact Group Holdings reported flat revenue and EBIT margins over the last year. That's not a major concern but nor does it point to the long term growth we like to see.

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.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Pact Group Holdings.

Are Pact Group Holdings 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We note that Pact Group Holdings insiders spent AU$137k on stock, over the last year; in contrast, we didn't see any selling. That's nice to see, because it suggests insiders are optimistic. It is also worth noting that it was Independent Non Executive Director Michael Wachtel who made the biggest single purchase, worth AU$82k, paying AU$2.34 per share.

On top of the insider buying, it's good to see that Pact Group Holdings insiders have a valuable investment in the business. Indeed, they hold AU$65m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 5.3% of the company; visible skin in the game.

Is Pact Group Holdings Worth Keeping An Eye On?

You can't deny that Pact Group Holdings has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. You should always think about risks though. Case in point, we've spotted 4 warning signs for Pact Group Holdings you should be aware of, and 1 of them is a bit concerning.

As a growth investor I do like to see insider buying. But Pact Group Holdings isn't the only one. You can see a 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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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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