Do Element Fleet Management's (TSE:EFN) Earnings Warrant Your Attention?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See 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. Thus, it makes sense to focus on more recent growth rates, instead. Element Fleet Management boosted its trailing twelve month EPS from CA$0.87 to CA$1.05, in the last year. There's little doubt shareholders would be happy with that 21% gain.

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 Element Fleet Management's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. EBIT margins for Element Fleet Management remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 17% to CA$1.8b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Although we did see some insider selling (worth CA$520k) this was overshadowed by a mountain of buying, totalling CA$4.3m in just one year. We find this encouraging because it suggests they are optimistic about Element Fleet Management'sfuture. We also note that it was the company insider, Jay Forbes, who made the biggest single acquisition, paying CA$1.8m for shares at about CA$18.50 each.

On top of the insider buying, it's good to see that Element Fleet Management insiders have a valuable investment in the business. As a matter of fact, their holding is valued at CA$20m. That's a lot of money, and no small incentive to work hard. Despite being just 0.2% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Does Element Fleet Management Deserve A Spot On Your Watchlist?

As previously touched on, Element Fleet Management is a growing business, which is encouraging. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for your watchlist - and arguably a research priority. You still need to take note of risks, for example - Element Fleet Management has 1 warning sign we think you should be aware of.

The good news is that Element Fleet Management is not the only growth stock with insider buying. Here's a list of them... 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.