If You Like EPS Growth Then Check Out Andrews Sykes Group (LON:ASY) Before It's Too Late

By
Simply Wall St
Published
March 20, 2021
AIM:ASY
Source: Shutterstock

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In contrast to all that, I prefer to spend time on companies like Andrews Sykes Group (LON:ASY), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Andrews Sykes Group

Andrews Sykes Group's Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Andrews Sykes Group has grown its trailing twelve month EPS from UK£0.35 to UK£0.37, in the last year. That amounts to a small improvement of 4.5%.

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. It seems Andrews Sykes Group is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not a major concern but nor does it point to the long term growth we like to see.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
AIM:ASY Earnings and Revenue History March 21st 2021

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Andrews Sykes Group's balance sheet strength, before getting too excited.

Are Andrews Sykes Group Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Andrews Sykes Group shares worth a considerable sum. To be specific, they have UK£10m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 4.0% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add Andrews Sykes Group To Your Watchlist?

As I already mentioned, Andrews Sykes Group is a growing business, which is what I like to see. If that's not enough on its own, there is also the rather notable levels of insider ownership. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. Still, you should learn about the 1 warning sign we've spotted with Andrews Sykes Group .

Although Andrews Sykes Group certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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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