Here's Why We Think Educational Development (NASDAQ:EDUC) Is Well Worth Watching

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Educational Development (NASDAQ:EDUC). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Educational Development

Educational Development's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. It certainly is nice to see that Educational Development has managed to grow EPS by 34% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. The good news is that Educational Development is growing revenues, and EBIT margins improved by 2.3 percentage points to 8.6%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Since Educational Development is no giant, with a market capitalization of US$91m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Educational Development Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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.

While Educational Development insiders did net -US$31k selling stock over the last year, they invested US$233k, a much higher figure. You could argue that level of buying implies genuine confidence in the business. It is also worth noting that it was Independent Director Joshua Peters who made the biggest single purchase, worth US$177k, paying US$14.77 per share.

On top of the insider buying, it's good to see that Educational Development insiders have a valuable investment in the business. Indeed, they hold US$25m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 27% of the company; visible skin in the game.

Is Educational Development Worth Keeping An Eye On?

For growth investors like me, Educational Development's raw rate of earnings growth is a beacon in the night. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So I do think this is one stock worth watching. We don't want to rain on the parade too much, but we did also find 6 warning signs for Educational Development (2 can't be ignored!) that you need to be mindful of.

The good news is that Educational Development 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. 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.
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