Is Now The Time To Put ADF Group (TSE:DRX) On Your Watchlist?

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. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like ADF Group (TSE:DRX), which has not only revenues, but also profits. 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 ADF Group

ADF Group's Improving Profits

Over the last three years, ADF Group has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. ADF Group boosted its trailing twelve month EPS from CA$0.33 to CA$0.41, in the last year. This amounts to a 25% gain; a figure that shareholders will be pleased to see.

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. We note that while EBIT margins have improved from 4.1% to 7.7%, the company has actually reported a fall in revenue by 9.0%. That falls short of ideal.

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

Since ADF Group is no giant, with a market capitalisation of CA$78m, you should definitely check its cash and debt before getting too excited about its prospects.

Are ADF Group Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own ADF Group shares worth a considerable sum. As a matter of fact, their holding is valued at CA$23m. This considerable investment should help drive long-term value in the business. That amounts to 29% of the company, demonstrating a degree of high-level alignment with shareholders.

Is ADF Group Worth Keeping An Eye On?

One positive for ADF Group is that it is growing EPS. That's nice to see. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. These two factors are a huge highlight for the company which should be a strong contender your watchlists. It is worth noting though that we have found 2 warning signs for ADF Group (1 is potentially serious!) that you need to take into consideration.

Although ADF Group certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.