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

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Element Fleet Management (TSE:EFN). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

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How Fast Is Element Fleet Management Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Element Fleet Management managed to grow EPS by 16% per year, over three years. That's a pretty good rate, if the company can sustain it.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Our analysis has highlighted that Element Fleet Management's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. While we note Element Fleet Management achieved similar EBIT margins to last year, revenue grew by a solid 12% to US$1.7b. That's encouraging news for the company!

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

See our latest analysis for Element Fleet Management

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?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The US$780k worth of shares that insiders sold during the last 12 months pales in comparison to the US$2.6m they spent on acquiring shares in the company. We find this encouraging because it suggests they are optimistic about Element Fleet Management'sfuture. Zooming in, we can see that the biggest insider purchase was by CEO, President & Director Laura Dottori-Attanasio for CA$500k worth of shares, at about CA$27.78 per share.

The good news, alongside the insider buying, for Element Fleet Management bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$22m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 0.2% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Does Element Fleet Management Deserve A Spot On Your Watchlist?

One positive for Element Fleet Management is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. It is worth noting though that we have found 1 warning sign for Element Fleet Management that you need to take into consideration.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Element Fleet Management, you'll probably love this curated collection of companies in CA that have an attractive valuation alongside 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.