Stock Analysis

We Ran A Stock Scan For Earnings Growth And Muza (WSE:MZA) Passed With Ease

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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 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Muza (WSE:MZA). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Muza with the means to add long-term value to shareholders.

See our latest analysis for Muza

How Fast Is Muza 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Muza's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 58%. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Muza achieved similar EBIT margins to last year, revenue grew by a solid 6.6% to zł38m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

WSE:MZA Earnings and Revenue History March 19th 2023

Muza isn't a huge company, given its market capitalisation of zł22m. That makes it extra important to check on its balance sheet strength.

Are Muza Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So as you can imagine, the fact that Muza insiders own a significant number of shares certainly is appealing. In fact, they own 65% 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. Valued at only zł22m Muza is really small for a listed company. That means insiders only have zł15m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Should You Add Muza To Your Watchlist?

Muza's earnings have taken off in quite an impressive fashion. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching Muza very closely. What about risks? Every company has them, and we've spotted 3 warning signs for Muza (of which 2 are a bit concerning!) you should know about.

The beauty of investing is that you can invest in almost 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.

Valuation is complex, but we're helping make it simple.

Find out whether Muza is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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Muza S.A. publishes books in Poland. The company publishes various categories of books that include literature, crime, sensation, thriller, fiction, fantastic, non-fiction, social sciences and business, cuisine and diets, personal development, family and relationships, health, house and garden, fashion and beauty, hobby, guides, gadgets, audiobooks, history, biographies, and horror, as well as books for children and youth.

Excellent balance sheet with solid track record.