Does 3i Group (LON:III) Deserve A Spot On Your Watchlist?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like 3i Group (LON:III). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

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How Fast Is 3i Group Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. 3i Group managed to grow EPS by 7.2% per year, over three years. This may not be setting the world alight, but it does show that EPS is on the upwards trend.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Not all of 3i Group's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. EBIT margins for 3i Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 29% to UK£5.1b. That's progress.

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

Check out our latest analysis for 3i Group

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 3i Group.

Are 3i Group Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. 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.

Any way you look at it 3i Group shareholders can gain quiet confidence from the fact that insiders shelled out UK£405k to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that there are brighter days ahead. It is also worth noting that it was COO & Executive Director Jasi Halai who made the biggest single purchase, worth UK£189k, paying UK£40.57 per share.

On top of the insider buying, it's good to see that 3i Group insiders have a valuable investment in the business. Indeed, they have a considerable amount of wealth invested in it, currently valued at UK£817m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Should You Add 3i Group To Your Watchlist?

One important encouraging feature of 3i Group is that it is growing profits. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. Of course, just because 3i Group is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

The good news is that 3i Group is not the only stock with insider buying. Here's a list of small cap, undervalued companies in GB 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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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.