Here's Why We Think Avensia (STO:AVEN) Is Well Worth Watching

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Avensia (STO:AVEN), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Avensia with the means to add long-term value to shareholders.

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Avensia's Earnings Per Share Are 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) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Avensia managed to grow EPS by 15% per year, over three years. That's a pretty good rate, if the company can sustain it.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Avensia maintained stable EBIT margins over the last year, all while growing revenue 4.2% to kr432m. That's progress.

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

See our latest analysis for Avensia

Since Avensia is no giant, with a market capitalisation of kr342m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Avensia Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

In the last twelve months Avensia insiders spent kr225k on stock; good news for shareholders. While this isn't much, we also note an absence of sales. Zooming in, we can see that the biggest insider purchase was by Chief Sales Officer of Avensia AB Information Management Sofia Aru for kr50k worth of shares, at about kr12.20 per share.

On top of the insider buying, we can also see that Avensia insiders own a large chunk of the company. Indeed, with a collective holding of 66%, company insiders are in control and have plenty of capital behind the venture. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have kr224m invested in the business, at the current share price. That's nothing to sneeze at!

Should You Add Avensia To Your Watchlist?

As previously touched on, Avensia is a growing business, which is encouraging. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. Before you take the next step you should know about the 2 warning signs for Avensia that we have uncovered.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Avensia, you'll probably love this curated collection of companies in SE that have an attractive valuation alongside 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.