Do Helios Underwriting's (LON:HUW) 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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Helios Underwriting (LON:HUW). 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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Helios Underwriting's Improving Profits

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It is awe-striking that Helios Underwriting's EPS went from UK£0.073 to UK£0.24 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of Helios Underwriting'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. The good news is that Helios Underwriting is growing revenues, and EBIT margins improved by 6.9 percentage points to 9.7%, over the last year. That's great to see, on both counts.

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

See our latest analysis for Helios Underwriting

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 Helios Underwriting.

Are Helios Underwriting Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

While Helios Underwriting insiders did net UK£80k selling stock over the last year, they invested UK£319k, a much higher figure. This overall confidence in the company at current the valuation signals their optimism. It is also worth noting that it was Non-Executive Deputy Chairman Nigel Hanbury who made the biggest single purchase, worth UK£85k, paying UK£1.83 per share.

On top of the insider buying, it's good to see that Helios Underwriting insiders have a valuable investment in the business. Given insiders own a significant chunk of shares, currently valued at UK£42m, they have plenty of motivation to push the business to succeed. That holding amounts to 23% of the stock on issue, thus making insiders influential owners of the business and aligned with the interests of shareholders.

Should You Add Helios Underwriting To Your Watchlist?

Helios Underwriting's earnings per share have been soaring, with growth rates sky high. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Helios Underwriting deserves timely attention. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Helios Underwriting , and understanding these should be part of your investment process.

Keen growth investors love to see insider activity. Thankfully, Helios Underwriting isn't the only one. You can see a a curated list of British companies which have exhibited consistent growth accompanied by high insider ownership.

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.