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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.’
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Axactor (OB:AXA). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
Axactor’s Improving Profits
Over the last three years, Axactor 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 the last firework on New Year’s Eve accelerating into the sky, Axactor’s EPS shot from €0.022 to €0.05, over the last year. Year on year growth of 124% is certainly a sight to behold.
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. I note that Axactor’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Axactor shareholders can take confidence from the fact that EBIT margins are up from 12% to 23%, and revenue is growing. That’s great to see, on both counts.
The chart below shows how the company’s bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Axactor’s forecast profits?
Are Axactor Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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.
We note that Axactor insiders spent €715k on stock, over the last year; in contrast, we didn’t see any selling. That’s nice to see, because it suggests insiders are optimistic. We also note that it was the Chairman of the Board, Bjørn Næss, who made the biggest single acquisition, paying øre522k for shares at about øre23.21 each.
The good news, alongside the insider buying, for Axactor bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold €349m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 12% of the company; visible skin in the game.
Is Axactor Worth Keeping An Eye On?
Axactor’s earnings have taken off like any random crypto-currency did, back in 2017. If you’re like me, you’ll find it hard to ignore that sort of explosive EPS growth. And in fact, it could well signal a fundamental shift in the business economics. If that’s the case, you may regret neglecting to put Axactor on your watchlist. 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 Axactor is trading on a high P/E or a low P/E, relative to its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Axactor, 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
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 email@example.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.