Do Splendid Medien's (ETR:SPM) Earnings Warrant Your Attention?

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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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 Splendid Medien (ETR:SPM). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Splendid Medien with the means to add long-term value to shareholders.

See our latest analysis for Splendid Medien

Splendid Medien's Improving Profits

In the last three years Splendid Medien'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. So it would be better to isolate the growth rate over the last year for our analysis. Splendid Medien boosted its trailing twelve month EPS from €0.24 to €0.29, in the last year. There's little doubt shareholders would be happy with that 19% gain.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Despite consistency in EBIT margins year on year, Splendid Medien has actually recorded a dip in revenue. This does not bode too well for short term growth prospects and so understanding the reasons for these results is of great importance.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Splendid Medien isn't a huge company, given its market capitalisation of €12m. That makes it extra important to check on its balance sheet strength.

Are Splendid Medien Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So those who are interested in Splendid Medien will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 63% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Although, with Splendid Medien being valued at €12m, this is a small company we're talking about. So this large proportion of shares owned by insiders only amounts to €7.9m. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Should You Add Splendid Medien To Your Watchlist?

As previously touched on, Splendid Medien is a growing business, which is encouraging. If that's not enough on its own, there is also the rather notable levels of insider ownership. These two factors are a huge highlight for the company which should be a strong contender your watchlists. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Splendid Medien (1 is a bit unpleasant) you should be aware of.

Although Splendid Medien certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of German companies that not only boast of strong growth but have also seen recent insider 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.