With EPS Growth And More, Home Capital Group (TSE:HCG) Is Interesting

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. 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 Home Capital Group (TSE:HCG). 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.

Check out our latest analysis for Home Capital Group

Home Capital Group's Improving Profits

In the last three years Home Capital Group's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like a falcon taking flight, Home Capital Group's EPS soared from CA$2.09 to CA$2.94, over the last year. That's a impressive gain of 41%.

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. Not all of Home Capital Group's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Home Capital Group maintained stable EBIT margins over the last year, all while growing revenue 13% to CA$474m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Home Capital Group EPS 100% free.

Are Home Capital Group 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.

Despite -CA$56k worth of sales, Home Capital Group insiders have overwhelmingly been buying the stock, spending CA$476k on purchases in the last twelve months. You could argue that level of buying implies genuine confidence in the business. We also note that it was the Senior Vice President of Commercial Real Estate Lending, James Pelletier, who made the biggest single acquisition, paying CA$106k for shares at about CA$28.32 each.

Along with the insider buying, another encouraging sign for Home Capital Group is that insiders, as a group, have a considerable shareholding. With a whopping CA$123m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.

Does Home Capital Group Deserve A Spot On Your Watchlist?

For growth investors like me, Home Capital Group'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. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Home Capital Group is trading on a high P/E or a low P/E, relative to its industry.

As a growth investor I do like to see insider buying. But Home Capital 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. 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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