With EPS Growth And More, Excellence (WSE:EXC) Makes An Interesting Case

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.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Excellence (WSE:EXC). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Check out our latest analysis for Excellence

How Quickly Is Excellence Increasing Earnings Per Share?

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. Excellence's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 45%. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

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. Unfortunately, Excellence's revenue dropped 6.4% last year, but the silver lining is that EBIT margins improved from 5.0% to 16%. That falls short of ideal.

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.

Since Excellence is no giant, with a market capitalisation of zł35m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Excellence Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So as you can imagine, the fact that Excellence insiders own a significant number of shares certainly is appealing. Indeed, with a collective holding of 53%, company insiders are in control and have plenty of capital behind the venture. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Of course, Excellence is a very small company, with a market cap of only zł35m. So despite a large proportional holding, insiders only have zł19m worth of stock. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.

Does Excellence Deserve A Spot On Your Watchlist?

Excellence's earnings per share have been soaring, with growth rates sky high. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So at the surface level, Excellence is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. We should say that we've discovered 1 warning sign for Excellence that you should be aware of before investing here.

Although Excellence certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Polish companies that not only boast of strong growth but have strong insider backing.

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.