Is Now The Time To Put Velocity Financial (NYSE:VEL) On Your Watchlist?

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Velocity Financial (NYSE:VEL). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Velocity Financial

How Fast Is Velocity Financial Growing Its Earnings Per Share?

Over the last three years, Velocity Financial has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. Velocity Financial's EPS shot up from US$0.98 to US$1.30; a result that's bound to keep shareholders happy. That's a impressive gain of 33%.

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 Velocity Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for Velocity Financial remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 24% to US$114m. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Velocity Financial?

Are Velocity 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's nice to see that there have been no reports of any insiders selling shares in Velocity Financial in the previous 12 months. So it's definitely nice that Independent Director John Pitstick bought US$25k worth of shares at an average price of around US$8.27. It seems that at least one insider is prepared to show the market there is potential within Velocity Financial.

Along with the insider buying, another encouraging sign for Velocity Financial is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at US$12m. That's a lot of money, and no small incentive to work hard. Even though that's only about 3.0% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is Velocity Financial Worth Keeping An Eye On?

For growth investors, Velocity Financial's raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant piece of the pie when it comes to the company's stock, and one has been buying more. Astute investors will want to keep this stock on watch. We should say that we've discovered 1 warning sign for Velocity Financial that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Velocity Financial, you'll probably love this free list of growing companies that insiders are buying.

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.