I Ran A Stock Scan For Earnings Growth And ReadyTech Holdings (ASX:RDY) Passed With Ease

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in ReadyTech Holdings (ASX:RDY). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for ReadyTech Holdings

How Fast Is ReadyTech Holdings Growing Its Earnings Per Share?

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Like the last firework on New Year's Eve accelerating into the sky, ReadyTech Holdings's EPS shot from AU$0.014 to AU$0.039, over the last year. Year on year growth of 173% is certainly a sight to behold.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. ReadyTech Holdings shareholders can take confidence from the fact that EBIT margins are up from 7.5% to 9.6%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

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.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of ReadyTech Holdings's forecast profits?

Are ReadyTech Holdings Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.

It's a pleasure to note that insiders spent AU$1.3m buying ReadyTech Holdings shares, over the last year, without reporting any share sales whatsoever. As if for a flower bud approaching bloom, I become an expectant observer, anticipating with hope, that something splendid is coming. Zooming in, we can see that the biggest insider purchase was by Alternate Non-Executive Director Mark Summerhayes for AU$208k worth of shares, at about AU$1.80 per share.

Along with the insider buying, another encouraging sign for ReadyTech Holdings is that insiders, as a group, have a considerable shareholding. Indeed, they hold AU$19m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 8.9% of the company, demonstrating a degree of high-level alignment with shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Marc Washbourne is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like ReadyTech Holdings with market caps between AU$127m and AU$510m is about AU$651k.

ReadyTech Holdings offered total compensation worth AU$358k to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Does ReadyTech Holdings Deserve A Spot On Your Watchlist?

ReadyTech Holdings's earnings per share have taken off like a rocket aimed right at the moon. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest ReadyTech Holdings belongs on the top of your watchlist. We don't want to rain on the parade too much, but we did also find 1 warning sign for ReadyTech Holdings that you need to be mindful of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of ReadyTech 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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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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