Here's Why We Think Travelzoo (NASDAQ:TZOO) Is Well Worth Watching

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like Travelzoo (NASDAQ:TZOO), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Travelzoo

Travelzoo's Improving Profits

Travelzoo 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. Outstandingly, Travelzoo's EPS shot from US$0.24 to US$0.64, over the last year. It's a rarity to see 163% year-on-year growth like that.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that Travelzoo is growing revenues, and EBIT margins improved by 15.8 percentage points to 15%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

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.

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

Are Travelzoo Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. 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.

While there was some insider selling, that pales in comparison to the US$15m that the Founder & Chief Talent Officer, Ralph Bartel spent acquiring shares. The average price of which was US$4.40 per share. Big purchases like that are well worth noting, especially for those who like to follow the insider money.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Travelzoo insiders own more than a third of the company. To be exact, company insiders hold 51% of the company, so their decisions have a significant impact on their investments. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. To give you an idea, the value of insiders' holdings in the business are valued at US$52m at the current share price. So there's plenty there to keep them focused!

Does Travelzoo Deserve A Spot On Your Watchlist?

Travelzoo's earnings per share growth have been climbing higher at an appreciable rate. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Travelzoo deserves timely attention. Before you take the next step you should know about the 2 warning signs for Travelzoo that we have uncovered.

Keen growth investors love to see insider buying. Thankfully, Travelzoo 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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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.