Here's Why We Think Exchange Income (TSE:EIF) Might Deserve Your Attention Today

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Exchange Income (TSE:EIF), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Exchange Income with the means to add long-term value to shareholders.

See our latest analysis for Exchange Income

How Quickly Is Exchange Income Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Exchange Income has managed to grow EPS by 19% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Exchange Income shareholders can take confidence from the fact that EBIT margins are up from 9.7% to 12%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Exchange Income's future profits.

Are Exchange Income 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 CA$285k worth of shares that insiders sold during the last 12 months pales in comparison to the CA$3.8m they spent on acquiring shares in the company. We find this encouraging because it suggests they are optimistic about Exchange Income'sfuture. We also note that it was the Independent Director, Gary Buckley, who made the biggest single acquisition, paying CA$3.0m for shares at about CA$52.25 each.

On top of the insider buying, it's good to see that Exchange Income insiders have a valuable investment in the business. As a matter of fact, their holding is valued at CA$47m. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 2.1% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Does Exchange Income Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Exchange Income's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. These things considered, this is one stock worth watching. However, before you get too excited we've discovered 3 warning signs for Exchange Income (1 is a bit concerning!) that you should be aware of.

Keen growth investors love to see insider buying. Thankfully, Exchange Income isn't the only one. You can see a a free list of them here.

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.