Here's Why Hiscox (LON:HSX) Has Caught The Eye Of Investors

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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

Hiscox's Improving Profits

In the last three years Hiscox's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Hiscox's EPS skyrocketed from US$1.36 to US$2.12, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 56%.

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. It's noted that Hiscox's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for Hiscox remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 16% to US$3.8b. That's a real positive.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Hiscox?

Are Hiscox Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Shareholders will be pleased by the fact that insiders own Hiscox shares worth a considerable sum. As a matter of fact, their holding is valued at US$17m. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.5% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Is Hiscox Worth Keeping An Eye On?

You can't deny that Hiscox has grown its earnings per share at a very impressive rate. That's attractive. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Hiscox's continuing strength. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. However, before you get too excited we've discovered 2 warning signs for Hiscox (1 is potentially serious!) that you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of British companies which have demonstrated growth backed by significant insider holdings.

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.