Does Imperial Brands (LON:IMB) Deserve A Spot On Your Watchlist?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Imperial Brands (LON:IMB). 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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Imperial Brands' Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. Imperial Brands' EPS skyrocketed from UK£2.52 to UK£3.22, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 28%.

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. While we note Imperial Brands achieved similar EBIT margins to last year, revenue grew by a solid 2.3% to UK£18b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

View our latest analysis for Imperial Brands

Fortunately, we've got access to analyst forecasts of Imperial Brands' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Imperial Brands 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But the bigger deal is that the Independent Non-Executive Director, Alan Johnson, paid UK£40k to buy shares at an average price of UK£28.62. Purchases like this clue us in to the to the faith management has in the business' future.

On top of the insider buying, it's good to see that Imperial Brands insiders have a valuable investment in the business. Indeed, they have a considerable amount of wealth invested in it, currently valued at UK£1.5b. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Does Imperial Brands Deserve A Spot On Your Watchlist?

For growth investors, Imperial Brands' raw rate of earnings growth is a beacon in the night. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. These things considered, this is one stock worth watching. Even so, be aware that Imperial Brands is showing 3 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Imperial Brands, you'll probably love this curated collection of companies in GB that have an attractive valuation alongside 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.