Do Avanza Bank Holding's (STO:AZA) Earnings Warrant Your Attention?

By
Simply Wall St
Published
November 28, 2021
OM:AZA
Source: Shutterstock

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Avanza Bank Holding (STO:AZA). 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. 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.

View our latest analysis for Avanza Bank Holding

Avanza Bank Holding's Improving Profits

In the last three years Avanza Bank Holding'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 firecracker arcing through the night sky, Avanza Bank Holding's EPS shot from kr6.75 to kr12.73, over the last year. You don't see 89% year-on-year growth like that, very often. That could be a sign that the business has reached a true inflection point.

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. I note that Avanza Bank Holding's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Avanza Bank Holding's EBIT margins were flat over the last year, revenue grew by a solid 61% to kr3.6b. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
OM:AZA Earnings and Revenue History November 29th 2021

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Avanza Bank Holding.

Are Avanza Bank Holding Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Although we did see some insider selling (worth -kr6.3m) this was overshadowed by a mountain of buying, totalling kr24m in just one year. I find this encouraging because it suggests they are optimistic about the Avanza Bank Holding's future. Zooming in, we can see that the biggest insider purchase was by Independent Chairman of the Board Sven Hagströmer for kr17m worth of shares, at about kr264 per share.

Along with the insider buying, another encouraging sign for Avanza Bank Holding is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth kr2.4b. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Does Avanza Bank Holding Deserve A Spot On Your Watchlist?

Avanza Bank Holding's earnings per share have taken off like a rocket aimed right at the moon. What's more insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Avanza Bank Holding deserves timely attention. Before you take the next step you should know about the 1 warning sign for Avanza Bank Holding that we have uncovered.

As a growth investor I do like to see insider buying. But Avanza Bank Holding isn't the only one. You can see a 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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