With EPS Growth And More, Pact Group Holdings (ASX:PGH) Is Interesting

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Pact Group Holdings (ASX:PGH), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.

See our latest analysis for Pact Group Holdings

How Fast Is Pact Group Holdings Growing Its Earnings Per Share?

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. 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 bad, but it doesn't point to ongoing future growth, either.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of Pact Group Holdings's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

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. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. 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$135k 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. We also note that it was the Independent Non Executive Director, Michael Wachtel, who made the biggest single acquisition, paying AU$82k for shares at about AU$2.34 each.

The good news, alongside the insider buying, for Pact Group Holdings bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold AU$64m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 5.3% of the company, demonstrating a degree of high-level alignment with shareholders.

Should You Add Pact Group Holdings To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Pact Group Holdings's strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So I do think this is one stock worth watching. What about risks? Every company has them, and we've spotted 3 warning signs for Pact Group Holdings (of which 1 can't be ignored!) you should know about.

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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