Is Now The Time To Put Medallion Financial (NASDAQ:MFIN) On Your Watchlist?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Medallion Financial (NASDAQ:MFIN), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for Medallion Financial

How Fast Is Medallion Financial Growing Its Earnings Per Share?

Medallion Financial has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. Medallion Financial's EPS skyrocketed from US$1.67 to US$2.27, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 35%.

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. It's noted that Medallion Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While we note Medallion Financial achieved similar EBIT margins to last year, revenue grew by a solid 19% to US$209m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of Medallion Financial's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Medallion Financial Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.

Despite US$23k worth of sales, Medallion Financial insiders have overwhelmingly been buying the stock, spending US$285k on purchases in the last twelve months. You could argue that level of buying implies genuine confidence in the business. Zooming in, we can see that the biggest insider purchase was by company insider David Orr for US$116k worth of shares, at about US$7.41 per share.

On top of the insider buying, it's good to see that Medallion Financial insiders have a valuable investment in the business. As a matter of fact, their holding is valued at US$37m. This considerable investment should help drive long-term value in the business. As a percentage, this totals to 22% of the shares on issue for the business, an appreciable amount considering the market cap.

Should You Add Medallion Financial To Your Watchlist?

You can't deny that Medallion Financial has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say that this stock may well deserve a spot on your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Medallion Financial (at least 2 which are a bit unpleasant) , and understanding them should be part of your investment process.

The good news is that Medallion Financial 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. 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.