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 completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In contrast to all that, I prefer to spend time on companies like boohoo group (LON:BOO), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Fast Is boohoo group Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Who among us would not applaud boohoo group's stratospheric annual EPS growth of 39%, compound, over the last three years? That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. boohoo group maintained stable EBIT margins over the last year, all while growing revenue 41% to UK£1.7b. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of boohoo group's forecast profits?
Are boohoo group Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.
It's a pleasure to note that insiders spent UK£1.5m buying boohoo group shares, over the last year, without reporting any share sales whatsoever. As if for a flower bud approaching bloom, I become an expectant observer, anticipating with hope, that something splendid is coming. Zooming in, we can see that the biggest insider purchase was by Co-Founder & Group Executive Chairman Mahmud Kamani for UK£729k worth of shares, at about UK£2.43 per share.
Along with the insider buying, another encouraging sign for boohoo group is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth UK£706m. Coming in at 20% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
Does boohoo group Deserve A Spot On Your Watchlist?
boohoo group's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest boohoo group belongs on the top of your watchlist. We should say that we've discovered 2 warning signs for boohoo group (1 makes us a bit uncomfortable!) that you should be aware of before investing here.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of boohoo group, 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.
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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.
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