If EPS Growth Is Important To You, Mainfreight (NZSE:MFT) Presents An Opportunity

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 currently 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.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Mainfreight (NZSE:MFT), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Mainfreight with the means to add long-term value to shareholders.

View our latest analysis for Mainfreight

How Fast Is Mainfreight 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 means EPS growth is considered a real positive by most successful long-term investors. Mainfreight's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 46%. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

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. EBIT margins for Mainfreight remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 41% to NZ$5.9b. That's encouraging news for the company!

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of Mainfreight's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Mainfreight 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The NZ$1.2m worth of shares that insiders sold during the last 12 months pales in comparison to the NZ$7.6m they spent on acquiring shares in the company. This adds to the interest in Mainfreight because it suggests that those who understand the company best, are optimistic. Zooming in, we can see that the biggest insider purchase was by Founding Owner & Executive Chairman Bruce Plested for NZ$3.5m worth of shares, at about NZ$69.49 per share.

Along with the insider buying, another encouraging sign for Mainfreight is that insiders, as a group, have a considerable shareholding. Indeed, they have a considerable amount of wealth invested in it, currently valued at NZ$1.3b. Coming in at 18% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Looking very optimistic for investors.

Is Mainfreight Worth Keeping An Eye On?

Mainfreight's earnings per share growth have been climbing higher at an appreciable rate. Just as heartening; insiders both own and are buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Mainfreight belongs near the top of your watchlist. You should always think about risks though. Case in point, we've spotted 2 warning signs for Mainfreight you should be aware of, and 1 of them is a bit concerning.

Keen growth investors love to see insider buying. Thankfully, Mainfreight isn't the only one. You can see a a free list of them here.

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.