If EPS Growth Is Important To You, Colonial Motor (NZSE:CMO) Presents An Opportunity

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 Colonial Motor (NZSE:CMO). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Colonial Motor

How Fast Is Colonial Motor Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. Colonial Motor managed to grow EPS by 8.2% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.

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. While we note Colonial Motor achieved similar EBIT margins to last year, revenue grew by a solid 29% to NZ$999m. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Since Colonial Motor is no giant, with a market capitalisation of NZ$319m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Colonial Motor Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Not only did Colonial Motor insiders refrain from selling stock during the year, but they also spent NZ$305k buying it. That's nice to see, because it suggests insiders are optimistic. We also note that it was the company insider, Maarten Duurentijdt, who made the biggest single acquisition, paying NZ$275k for shares at about NZ$10.59 each.

On top of the insider buying, we can also see that Colonial Motor insiders own a large chunk of the company. In fact, they own 77% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. With that sort of holding, insiders have about NZ$247m riding on the stock, at current prices. That's nothing to sneeze at!

Does Colonial Motor Deserve A Spot On Your Watchlist?

One important encouraging feature of Colonial Motor is that it is growing profits. Better yet, insiders are significant shareholders, and have been buying more shares. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. What about risks? Every company has them, and we've spotted 1 warning sign for Colonial Motor you should know about.

The good news is that Colonial Motor is not the only growth stock with insider buying. Here's a list of them... 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.

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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.