If You Like EPS Growth Then Check Out Netwise (WSE:NTW) Before It's Too Late

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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.

So if you're like me, you might be more interested in profitable, growing companies, like Netwise (WSE:NTW). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Netwise

How Fast Is Netwise Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Who among us would not applaud Netwise's stratospheric annual EPS growth of 51%, compound, over the last three years? That sort of growth never lasts long, but like a shooting star it is well worth watching 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. Netwise shareholders can take confidence from the fact that EBIT margins are up from 13% to 26%, and revenue is growing. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

Netwise isn't a huge company, given its market capitalization of zł11m. That makes it extra important to check on its balance sheet strength.

Are Netwise 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 as you can imagine, the fact that Netwise insiders own a significant number of shares certainly appeals to me. In fact, they own 64% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. Of course, Netwise is a very small company, with a market cap of only zł11m. So despite a large proportional holding, insiders only have zł6.9m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

Is Netwise Worth Keeping An Eye On?

Netwise's earnings have taken off like any random crypto-currency did, back in 2017. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it's worth considering Netwise for a spot on your watchlist. We should say that we've discovered 2 warning signs for Netwise (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access 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. 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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