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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like IEC Electronics (NASDAQ:IEC). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.
IEC Electronics's Improving Profits
Over the last three years, IEC Electronics has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a wedge-tailed eagle on the wind, IEC Electronics's EPS soared from US$0.47 to US$0.68, in just one year. That's a impressive gain of 43%.
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). IEC Electronics maintained stable EBIT margins over the last year, all while growing revenue 11% to US$185m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
IEC Electronics isn't a huge company, given its market capitalization of US$127m. That makes it extra important to check on its balance sheet strength.
Are IEC Electronics Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Like a sturdy phalanx IEC Electronics insiders have stood united by refusing to sell shares over the last year. But my excitement comes from the US$57k that Independent Chairman Jeremy Nowak spent buying shares (at an average price of about US$7.57).
Is IEC Electronics Worth Keeping An Eye On?
For growth investors like me, IEC Electronics's raw rate of earnings growth is a beacon in the night. The growth rate whets my appetite for research, and the insider buying only increases my interest in the stock. So on this analysis I believe IEC Electronics is probably worth spending some time on. It is worth noting though that we have found 2 warning signs for IEC Electronics that you need to take into consideration.
The good news is that IEC Electronics 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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