For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in LleidaNetworks Serveis Telemàtics (BME:LLN). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Fast Is LleidaNetworks Serveis Telemàtics Growing Its Earnings Per Share?
In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. You can imagine, then, that it almost knocked my socks off when I realized that LleidaNetworks Serveis Telemàtics grew its EPS from €0.018 to €0.071, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement.
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. The good news is that LleidaNetworks Serveis Telemàtics is growing revenues, and EBIT margins improved by 3.7 percentage points to 7.7%, over the last year. 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. Click on the chart to see the exact numbers.
Since LleidaNetworks Serveis Telemàtics is no giant, with a market capitalization of €151m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are LleidaNetworks Serveis Telemàtics Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that LleidaNetworks Serveis Telemàtics insiders own a significant number of shares certainly appeals to me. Actually, with 43% of the company to their names, insiders are profoundly invested in the business. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. In terms of absolute value, insiders have €64m invested in the business, using the current share price. That's nothing to sneeze at!
Is LleidaNetworks Serveis Telemàtics Worth Keeping An Eye On?
LleidaNetworks Serveis Telemàtics's earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it's worth considering LleidaNetworks Serveis Telemàtics for a spot on your watchlist. It is worth noting though that we have found 2 warning signs for LleidaNetworks Serveis Telemàtics that you need to take into consideration.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access 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. 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.
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