Here's Why We Think Element Fleet Management (TSE:EFN) Is Well Worth Watching

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Element Fleet Management (TSE:EFN). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Element Fleet Management with the means to add long-term value to shareholders.

Check out our latest analysis for Element Fleet Management

Element Fleet Management's Improving Profits

Element Fleet Management has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. It's good to see that Element Fleet Management's EPS has grown from CA$0.93 to CA$1.11 over twelve months. There's little doubt shareholders would be happy with that 20% gain.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that Element Fleet Management's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While we note Element Fleet Management achieved similar EBIT margins to last year, revenue grew by a solid 18% to CA$1.9b. That's a real positive.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

Fortunately, we've got access to analyst forecasts of Element Fleet Management's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Element Fleet Management Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Although we did see some insider selling (worth CA$520k) this was overshadowed by a mountain of buying, totalling CA$5.8m in just one year. This adds to the interest in Element Fleet Management because it suggests that those who understand the company best, are optimistic. Zooming in, we can see that the biggest insider purchase was by company insider Jay Forbes for CA$1.8m worth of shares, at about CA$18.50 per share.

Does Element Fleet Management Deserve A Spot On Your Watchlist?

One important encouraging feature of Element Fleet Management is that it is growing profits. While some companies are struggling to grow EPS, Element Fleet Management seems free from that morose affliction. The real kicker is that insiders have been accumulating, suggesting that those who understand the company best see some potential. We should say that we've discovered 2 warning signs for Element Fleet Management (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

The good news is that Element Fleet Management is not the only growth stock with insider buying. Here's a list of growth-focused companies in CA 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.