If You Like EPS Growth Then Check Out Harvey Norman Holdings (ASX:HVN) Before It's Too Late

By
Simply Wall St
Published
April 09, 2022
ASX:HVN
Source: Shutterstock

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.

So if you're like me, you might be more interested in profitable, growing companies, like Harvey Norman Holdings (ASX:HVN). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Harvey Norman Holdings

How Fast Is Harvey Norman Holdings Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that Harvey Norman Holdings has managed to grow EPS by 24% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. On the one hand, Harvey Norman Holdings's EBIT margins fell over the last year, but on the other hand, revenue grew. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.

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.

earnings-and-revenue-history
ASX:HVN Earnings and Revenue History April 9th 2022

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Harvey Norman Holdings's future profits.

Are Harvey Norman Holdings Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The good news is that Harvey Norman Holdings insiders spent a whopping AU$6.7m on stock in just one year, and I didn't see any selling. As if for a flower bud approaching bloom, I become an expectant observer, anticipating with hope, that something splendid is coming. It is also worth noting that it was Co-Founder Gerald Harvey who made the biggest single purchase, worth AU$3.4m, paying AU$5.17 per share.

On top of the insider buying, we can also see that Harvey Norman Holdings insiders own a large chunk of the company. In fact, they own 41% of the shares, making insiders a very influential shareholder group. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. And their holding is extremely valuable at the current share price, totalling AU$2.6b. Now that's what I call some serious skin in the game!

Should You Add Harvey Norman Holdings To Your Watchlist?

For growth investors like me, Harvey Norman Holdings's raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant stake in the company and have been buying more shares. So I do think this is one stock worth watching. Still, you should learn about the 2 warning signs we've spotted with Harvey Norman Holdings (including 1 which is a bit unpleasant) .

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Harvey Norman Holdings, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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