Here's Why Consumer Portfolio Services (NASDAQ:CPSS) Has Caught The Eye Of Investors

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Consumer Portfolio Services (NASDAQ:CPSS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Consumer Portfolio Services with the means to add long-term value to shareholders.

Check out our latest analysis for Consumer Portfolio Services

Consumer Portfolio Services' Improving Profits

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So a growing EPS generally brings attention to a company in the eyes of prospective investors. Commendations have to be given in seeing that Consumer Portfolio Services grew its EPS from US$1.44 to US$4.44, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. This could point to the business hitting a point of inflection.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Our analysis has highlighted that Consumer Portfolio Services' revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Consumer Portfolio Services maintained stable EBIT margins over the last year, all while growing revenue 36% to US$261m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Consumer Portfolio Services isn't a huge company, given its market capitalisation of US$146m. That makes it extra important to check on its balance sheet strength.

Are Consumer Portfolio Services Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Shareholders will be pleased by the fact that insiders own Consumer Portfolio Services shares worth a considerable sum. To be specific, they have US$48m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 33% of the company; visible skin in the game.

Does Consumer Portfolio Services Deserve A Spot On Your Watchlist?

Consumer Portfolio Services' earnings have taken off in quite an impressive fashion. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, Consumer Portfolio Services is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. You should always think about risks though. Case in point, we've spotted 2 warning signs for Consumer Portfolio Services you should be aware of, and 1 of them is a bit unpleasant.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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. 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.