If You Like EPS Growth Then Check Out Volex (LON:VLX) Before It's Too Late

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Volex (LON:VLX). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for Volex

Volex's Improving Profits

In the last three years Volex's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like a falcon taking flight, Volex's EPS soared from US$0.094 to US$0.15, over the last year. That's a commendable gain of 58%.

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. While we note Volex's EBIT margins were flat over the last year, revenue grew by a solid 3.3% to US$398m. That's a real positive.

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.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Volex.

Are Volex Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We do note that, in the last year, insiders sold -US$206k worth of shares. But that's far less than the US$1.7m insiders spend purchasing stock. This makes me even more interested in Volex because it suggests that those who understand the company best, are optimistic. We also note that it was the Executive Chairman, Nathaniel Philip Victor Rothschild, who made the biggest single acquisition, paying UK£825k for shares at about UK£1.65 each.

On top of the insider buying, it's good to see that Volex insiders have a valuable investment in the business. Notably, they have an enormous stake in the company, worth US$125m. Coming in at 27% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

Should You Add Volex To Your Watchlist?

For growth investors like me, Volex's raw rate of earnings growth is a beacon in the night. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So I do think this is one stock worth watching. It is worth noting though that we have found 1 warning sign for Volex that you need to take into consideration.

As a growth investor I do like to see insider buying. But Volex 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. 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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