Do Enervit’s (BIT:ENV) Earnings Warrant Your Attention?

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Like a puppy chasing its tail, some new investors often chase ‘the next big thing’, even if that means buying ‘story stocks’ without revenue, let alone 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 Enervit (BIT:ENV), which has not only revenues, but also profits. While profit is not necessarily a social good, it’s easy to admire a business than can consistently produce it. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Enervit

Enervit’s Improving Profits

Over the last three years, Enervit has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don’t think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Like a wedge-tailed eagle on the wind, Enervit’s EPS soared from €0.16 to €0.20, in just one year. That’s a impressive gain of 26%.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Not all of Enervit’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. While we note Enervit’s EBIT margins were flat over the last year, revenue grew by a solid 12% to €63m. That’s a real positive.

BIT:ENV Income Statement, July 15th 2019
BIT:ENV Income Statement, July 15th 2019

Since Enervit is no giant, with a market capitalization of €59m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Enervit Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So we’re pleased to report that Enervit insiders own a meaningful share of the business. In fact, they own 81% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term – something I like to see. In terms of absolute value, insiders have €48m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Does Enervit Deserve A Spot On Your Watchlist?

You can’t deny that Enervit has grown its earnings per share at a very impressive rate. That’s attractive. I think that EPS growth is something to boast of, and it doesn’t surprise me that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. While we’ve looked at the quality of the earnings, we haven’t yet done any work to value the stock. So if you like to buy cheap, you may want to check if Enervit is trading on a high P/E or a low P/E, relative to its industry.

Although Enervit certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you’re looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.