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With EPS Growth And More, Localiza Rent a Car (BVMF:RENT3) Is Interesting
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 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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Localiza Rent a Car (BVMF:RENT3). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 Localiza Rent a Car
How Fast Is Localiza Rent a Car 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. I, for one, am blown away by the fact that Localiza Rent a Car has grown EPS by 45% per year, 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.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that Localiza Rent a Car is growing revenues, and EBIT margins improved by 12.7 percentage points to 28%, over the last year. That's great to see, on both counts.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Localiza Rent a Car's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Localiza Rent a Car Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a R$44b company like Localiza Rent a Car. But we are reassured by the fact they have invested in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at R$9.1b. That equates to 21% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.
Is Localiza Rent a Car Worth Keeping An Eye On?
Localiza Rent a Car's earnings have taken off like any random crypto-currency did, back in 2017. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it's worth considering Localiza Rent a Car for a spot on your watchlist. What about risks? Every company has them, and we've spotted 2 warning signs for Localiza Rent a Car you should know about.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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. 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.
About BOVESPA:RENT3
Localiza Rent a Car
Engages in car and fleet rental business in Brazil and internationally.
Reasonable growth potential with acceptable track record.