Should You Be Adding National Tyre & Wheel (ASX:NTD) To Your Watchlist Today?

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in National Tyre & Wheel (ASX:NTD). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 National Tyre & Wheel

How Quickly Is National Tyre & Wheel Increasing Earnings Per Share?

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. That means EPS growth is considered a real positive by most successful long-term investors. Who among us would not applaud National Tyre & Wheel's stratospheric annual EPS growth of 37%, compound, over the last three years? While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. National Tyre & Wheel maintained stable EBIT margins over the last year, all while growing revenue 76% to AU$291m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since National Tyre & Wheel is no giant, with a market capitalization of AU$99m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are National Tyre & Wheel 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news for National Tyre & Wheel shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that Murray Boyte, the Independent Non-Executive Chairman of the company, paid AU$35k for shares at around AU$0.88 each.

And the insider buying isn't the only sign of alignment between shareholders and the board, since National Tyre & Wheel insiders own more than a third of the company. Actually, with 37% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. With that sort of holding, insiders have about AU$36m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Does National Tyre & Wheel Deserve A Spot On Your Watchlist?

National Tyre & Wheel's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest National Tyre & Wheel belongs on the top of your watchlist. We don't want to rain on the parade too much, but we did also find 5 warning signs for National Tyre & Wheel that you need to be mindful of.

The good news is that National Tyre & Wheel is not the only growth stock with insider buying. Here's a list of them... 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.

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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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