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

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like ADF Group (TSE:DRX). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide ADF Group with the means to add long-term value to shareholders.

View our latest analysis for ADF Group

How Fast Is ADF Group Growing Its Earnings Per Share?

In the last three years ADF Group's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Impressively, ADF Group's EPS catapulted from CA$0.90 to CA$1.95, over the last year. It's not often a company can achieve year-on-year growth of 116%.

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. The music to the ears of ADF Group shareholders is that EBIT margins have grown from 14% to 23% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

ADF Group isn't a huge company, given its market capitalisation of CA$264m. That makes it extra important to check on its balance sheet strength.

Are ADF Group Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We haven't seen any insiders selling ADF Group shares, in the last year. With that in mind, it's heartening that Jean-François Boursier, the Chief Financial Officer of the company, paid CA$21k for shares at around CA$15.58 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.

The good news, alongside the insider buying, for ADF Group bulls is that insiders (collectively) have a meaningful investment in the stock. Holding CA$74m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. That holding amounts to 28% of the stock on issue, thus making insiders influential owners of the business and aligned with the interests of shareholders.

Is ADF Group Worth Keeping An Eye On?

ADF Group's earnings per share have been soaring, with growth rates sky high. To sweeten the deal, insiders have significant skin in the game with one even acquiring more. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest ADF Group belongs near the top of your watchlist. We should say that we've discovered 1 warning sign for ADF Group that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of ADF Group, 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.