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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. And in their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
In contrast to all that, I prefer to spend time on companies like QEX Logistics (NZSE:QEX), 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. 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.
QEX Logistics’s Improving Profits
In the last three years QEX Logistics’s earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn’t tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a wedge-tailed eagle on the wind, QEX Logistics’s EPS soared from NZ$0.027 to NZ$0.038, in just one year. That’s a impressive gain of 41%.
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. While we note QEX Logistics’s EBIT margins were flat over the last year, revenue grew by a solid 89% to NZ$59m. That’s a real positive.
QEX Logistics isn’t a huge company, given its market capitalization of NZ$50m. That makes it extra important to check on its balance sheet strength.
Are QEX Logistics Insiders Aligned With All Shareholders?
Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So we’re pleased to report that QEX Logistics insiders own a meaningful share of the business. Indeed, with a collective holding of 79%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term – something I like to see. With that sort of holding, insiders have about NZ$40m riding on the stock, at current prices. That’s nothing to sneeze at!
Is QEX Logistics Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about QEX Logistics’s strong EPS growth. 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. Of course, just because QEX Logistics is growing does not mean it is undervalued. If you’re wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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
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.