Do Plus500's (LON:PLUS) Earnings Warrant Your Attention?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Plus500 (LON:PLUS), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for Plus500

How Fast Is Plus500 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. Plus500's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 40%. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.

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. EBIT margins for Plus500 remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 34% to US$870m. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Plus500's forecast profits?

Are Plus500 Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

With strong conviction, Plus500 insiders have stood united by refusing to sell shares over the last year. But the bigger deal is that the company insider, Daniel King, paid US$50k to buy shares at an average price of US$13.07. Strong buying like that could be a sign of opportunity.

On top of the insider buying, it's good to see that Plus500 insiders have a valuable investment in the business. Given insiders own a significant chunk of shares, currently valued at US$57m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

Is Plus500 Worth Keeping An Eye On?

Plus500's earnings per share growth have been climbing higher at an appreciable rate. To sweeten the deal, insiders have significant skin in the game with one even acquiring more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Plus500 deserves timely attention. What about risks? Every company has them, and we've spotted 2 warning signs for Plus500 (of which 1 makes us a bit uncomfortable!) you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Plus500, you'll probably love this free list of growing companies that insiders are buying.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.