With EPS Growth And More, Exchange Income (TSE:EIF) Makes An Interesting Case

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 Exchange Income (TSE:EIF). 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.

View our latest analysis for Exchange Income

How Fast Is Exchange Income Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Exchange Income managed to grow EPS by 7.1% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

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. Exchange Income shareholders can take confidence from the fact that EBIT margins are up from 9.3% to 12%, and revenue is growing. That's great to see, on both counts.

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.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Exchange Income's forecast profits?

Are Exchange Income 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

While Exchange Income insiders did net CA$285k selling stock over the last year, they invested CA$1.0m, a much higher figure. This overall confidence in the company at current the valuation signals their optimism. Zooming in, we can see that the biggest insider purchase was by company insider Adam Terwin for CA$419k worth of shares, at about CA$41.85 per share.

On top of the insider buying, it's good to see that Exchange Income insiders have a valuable investment in the business. To be specific, they have CA$49m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 2.2% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is Exchange Income Worth Keeping An Eye On?

One important encouraging feature of Exchange Income is that it is growing profits. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. We should say that we've discovered 3 warning signs for Exchange Income (2 shouldn't be ignored!) 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 Exchange Income, you'll probably love this free list of growing companies that insiders are buying.

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.