Does Fabryka Farb i Lakierów Sniezka (WSE:SKA) Deserve A Spot On Your Watchlist?

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Fabryka Farb i Lakierów Sniezka (WSE:SKA). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for Fabryka Farb i Lakierów Sniezka

How Fast Is Fabryka Farb i Lakierów Sniezka Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Fabryka Farb i Lakierów Sniezka managed to grow EPS by 12% per year, over three years. That's a good rate of growth, if it can be sustained.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Fabryka Farb i Lakierów Sniezka maintained stable EBIT margins over the last year, all while growing revenue 14% to zł821m. That's a real positive.

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.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Fabryka Farb i Lakierów Sniezka's balance sheet strength, before getting too excited.

Are Fabryka Farb i Lakierów Sniezka Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Fabryka Farb i Lakierów Sniezka shares worth a considerable sum. Given insiders own a small fortune of shares, currently valued at zł258m, they have plenty of motivation to push the business to succeed. At 23% of the company, the co-investment by insiders gives me confidence that management will make long-term focussed decisions.

Is Fabryka Farb i Lakierów Sniezka Worth Keeping An Eye On?

One positive for Fabryka Farb i Lakierów Sniezka is that it is growing EPS. That's nice to see. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. However, before you get too excited we've discovered 2 warning signs for Fabryka Farb i Lakierów Sniezka that you should be aware of.

Although Fabryka Farb i Lakierów Sniezka certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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. 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.
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