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. And in . found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
So if you’re like me, you might be more interested in profitable, growing companies, like Creative Technology (SGX:C76). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Creative Technology’s Improving Profits
Over the last three years, Creative Technology has grown earnings per share (EPS) like bamboo after rain; fast, and from a low base. So I don’t think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Like a falcon taking flight, Creative Technology’s EPS soared from US$0.12 to US$0.16, over the last year. That’s a commendable gain of 31%.
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. Creative Technology’s EBIT margins are flat but, of some concern, its revenue is actually down. And that does make me a little more cautious of the stock.
The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.
Creative Technology isn’t a huge company, given its market capitalization of US$288m. That makes it extra important to check on its balance sheet strength.
Are Creative Technology 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 we’re pleased to report that Creative Technology insiders own a meaningful share of the business. In fact, they own 41% of the shares, making insiders a very influential shareholder group. I’m reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. That means insiders have US$117m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!
Should You Add Creative Technology To Your Watchlist?
For growth investors like me, Creative Technology’s raw rate of earnings growth is a beacon in the night. I think that EPS growth is something to boast of, and it doesn’t surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. While we’ve looked at the quality of the earnings, we haven’t yet done any work to value the stock. So if you like to buy cheap, you may want to check if Creative Technology is trading on a high P/E or a low P/E, relative to its industry.
Although Creative Technology certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you’re looking for.Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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