Should You Be Adding MedCap (STO:MCAP) To Your Watchlist Today?

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

So if you're like me, you might be more interested in profitable, growing companies, like MedCap (STO:MCAP). 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.

Check out our latest analysis for MedCap

MedCap's Improving Profits

In the last three years MedCap'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. As a result, I'll zoom in on growth over the last year, instead. MedCap boosted its trailing twelve month EPS from kr3.86 to kr4.31, in the last year. I doubt many would complain about that 12% gain.

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. The good news is that MedCap is growing revenues, and EBIT margins improved by 2.1 percentage points to 10%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are MedCap Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

MedCap top brass are certainly in sync, not having sold any shares, over the last year. But my excitement comes from the kr1.1m that Independent Chairman of the Board Peter von Ehrenheim spent buying shares (at an average price of about kr220).

Along with the insider buying, another encouraging sign for MedCap is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth kr898m. That equates to 27% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.

Does MedCap Deserve A Spot On Your Watchlist?

One positive for MedCap is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Of course, profit growth is one thing but it's even better if MedCap is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.

The good news is that MedCap is not the only growth stock with insider buying. Here's a list of them... 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.

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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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