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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Virtu Financial (NASDAQ:VIRT). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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.
How Fast Is Virtu Financial Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Virtu Financial has grown EPS by 33% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note Virtu Financial's EBIT margins were flat over the last year, revenue grew by a solid 60% to US$3.0b. 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.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Virtu Financial?
Are Virtu Financial Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We did see some selling in the last twelve months, but that's insignificant compared to the whopping US$2.2m that the CEO & Director, Douglas Cifu spent acquiring shares. We should note the average purchase price was around US$22.45. Big purchases like that are well worth noting, especially for those who like to follow the insider money.
On top of the insider buying, it's good to see that Virtu Financial insiders have a valuable investment in the business. To be specific, they have US$36m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.7% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Should You Add Virtu Financial To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Virtu Financial's strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. So I do think this is one stock worth watching. Don't forget that there may still be risks. For instance, we've identified 4 warning signs for Virtu Financial (1 is significant) you should be aware of.
As a growth investor I do like to see insider buying. But Virtu Financial isn't the only one. You can see a 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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