Here's Why We Think finnCap Group (LON:FCAP) Is Well Worth Watching

By
Simply Wall St
Published
July 05, 2021
AIM:FCAP
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. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

So if you're like me, you might be more interested in profitable, growing companies, like finnCap Group (LON:FCAP). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for finnCap Group

How Quickly Is finnCap Group Increasing Earnings Per Share?

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). That makes EPS growth an attractive quality for any company. Impressively, finnCap Group has grown EPS by 28% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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 finnCap Group's EBIT margins were flat over the last year, revenue grew by a solid 82% to UK£47m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
AIM:FCAP Earnings and Revenue History July 6th 2021

Since finnCap Group is no giant, with a market capitalization of UK£62m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are finnCap Group Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We note that finnCap Group insiders spent UK£81k on stock, over the last year; in contrast, we didn't see any selling. That's nice to see, because it suggests insiders are optimistic. We also note that it was the Group CEO & Director, Samantha Smith, who made the biggest single acquisition, paying UK£40k for shares at about UK£0.30 each.

On top of the insider buying, we can also see that finnCap Group insiders own a large chunk of the company. In fact, they own 57% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have UK£35m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Is finnCap Group Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about finnCap Group's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. So I do think this is one stock worth watching. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for finnCap Group that you should be aware of.

The good news is that finnCap Group is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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