If EPS Growth Is Important To You, ADF Group (TSE:DRX) Presents An Opportunity

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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 ADF Group (TSE:DRX). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for ADF Group

ADF Group's Improving Profits

ADF Group 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. To the delight of shareholders, ADF Group's EPS soared from CA$0.32 to CA$0.41, over the last year. That's a fantastic gain of 26%.

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. EBIT margins for ADF Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 40% to CA$292m. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Since ADF Group is no giant, with a market capitalisation of CA$65m, you should definitely check its cash and debt before getting too excited about its prospects.

Are ADF Group Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that ADF Group insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at CA$19m. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 29% of the shares on issue for the business, an appreciable amount considering the market cap.

Does ADF Group Deserve A Spot On Your Watchlist?

For growth investors, ADF Group's raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in ADF Group's continuing strength. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. We don't want to rain on the parade too much, but we did also find 2 warning signs for ADF Group (1 can't be ignored!) that you need to be mindful of.

The beauty of investing is that you can invest in almost 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.