If EPS Growth Is Important To You, Franchise Group (NASDAQ:FRG) Presents An Opportunity

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. 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 Franchise Group (NASDAQ:FRG). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Franchise Group with the means to add long-term value to shareholders.

Check out our latest analysis for Franchise Group

How Fast Is Franchise Group Growing Its Earnings Per Share?

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It is awe-striking that Franchise Group's EPS went from US$0.05 to US$5.76 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?

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 music to the ears of Franchise Group shareholders is that EBIT margins have grown from 6.0% to 8.4% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Franchise Group's future EPS 100% free.

Are Franchise Group 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's pleasing to note that insiders spent US$4.0m buying Franchise Group shares, over the last year, without reporting any share sales whatsoever. Buying like that is a fantastic look for the company and should rouse the market in anticipation for the future. We also note that it was the President, Brian Kahn, who made the biggest single acquisition, paying US$3.8m for shares at about US$37.50 each.

On top of the insider buying, it's good to see that Franchise Group insiders have a valuable investment in the business. We note that their impressive stake in the company is worth US$347m. Coming in at 24% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Looking very optimistic for investors.

Does Franchise Group Deserve A Spot On Your Watchlist?

Franchise Group's earnings per share growth have been climbing higher at an appreciable rate. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Franchise Group deserves timely attention. You still need to take note of risks, for example - Franchise Group has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

Keen growth investors love to see insider buying. Thankfully, Franchise Group 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.