Does Conduit Holdings (LON:CRE) Deserve A Spot On Your Watchlist?

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.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Conduit Holdings (LON:CRE). 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.

View our latest analysis for Conduit Holdings

Conduit Holdings' Improving Profits

Even when EPS earnings per share (EPS) growth is unexceptional, company value can be created if this rate is sustained each year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Commendations have to be given in seeing that Conduit Holdings grew its EPS from US$0.18 to US$1.34, in one short year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. This could point to the business hitting a point of inflection.

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. Conduit Holdings shareholders can take confidence from the fact that EBIT margins are up from 5.2% to 30%, and revenue is growing. Both of which are great metrics to check off for potential growth.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

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

Are Conduit Holdings 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.

While Conduit Holdings insiders did net US$80k selling stock over the last year, they invested US$488k, a much higher figure. You could argue that level of buying implies genuine confidence in the business. It is also worth noting that it was Executive Director & CEO Trevor Carvey who made the biggest single purchase, worth UK£96k, paying UK£5.04 per share.

Along with the insider buying, another encouraging sign for Conduit Holdings is that insiders, as a group, have a considerable shareholding. To be specific, they have US$9.9m worth of shares. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 1.2%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Does Conduit Holdings Deserve A Spot On Your Watchlist?

Conduit Holdings' earnings per share growth have been climbing higher at an appreciable rate. What's more, insiders own a significant stake in the company and have been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Conduit Holdings belongs near the top of your watchlist. We don't want to rain on the parade too much, but we did also find 2 warning signs for Conduit Holdings (1 is a bit concerning!) that you need to be mindful of.

The good news is that Conduit Holdings 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.

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.