Here's Why We Think CAR Group (ASX:CAR) 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like CAR Group (ASX:CAR). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide CAR Group with the means to add long-term value to shareholders.

View our latest analysis for CAR Group

How Quickly Is CAR Group Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that CAR Group has grown EPS by 52% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. On the revenue front, CAR Group has done well over the past year, growing revenue by 53% to AU$781m but EBIT margin figures were less stellar, seeing a decline over the last 12 months. If EBIT margins are able to stay balanced and this revenue growth continues, then we should see brighter days ahead.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for CAR Group?

Are CAR Group 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. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The AU$1.6m worth of shares that insiders sold during the last 12 months pales in comparison to the AU$12m they spent on acquiring shares in the company. This adds to the interest in CAR Group because it suggests that those who understand the company best, are optimistic. It is also worth noting that it was Co-Founder & Non Executive Director Walter Pisciotta who made the biggest single purchase, worth AU$12m, paying AU$19.95 per share.

On top of the insider buying, it's good to see that CAR Group insiders have a valuable investment in the business. We note that their impressive stake in the company is worth AU$439m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Is CAR Group Worth Keeping An Eye On?

CAR Group's earnings per share growth have been climbing higher at an appreciable rate. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest CAR Group belongs near the top of your watchlist. However, before you get too excited we've discovered 3 warning signs for CAR Group (1 is a bit unpleasant!) that you should be aware of.

Keen growth investors love to see insider buying. Thankfully, CAR Group 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. 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.