Here's Why I Think AfroCentric Investment (JSE:ACT) Is An Interesting Stock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like AfroCentric Investment (JSE:ACT), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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 AfroCentric Investment

How Quickly Is AfroCentric Investment Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, AfroCentric Investment's EPS has grown 36% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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. AfroCentric Investment maintained stable EBIT margins over the last year, all while growing revenue 22% to R6.4b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since AfroCentric Investment is no giant, with a market capitalization of R1.9b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are AfroCentric Investment Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.

In the last twelve months AfroCentric Investment insiders spent R292k on stock; good news for shareholders. While this isn't much, we also note an absence of sales. Zooming in, we can see that the biggest insider purchase was by Group CEO & Executive Director Ahmed Banderker for R277k worth of shares, at about R2.81 per share.

Is AfroCentric Investment Worth Keeping An Eye On?

For growth investors like me, AfroCentric Investment's raw rate of earnings growth is a beacon in the night. Not only is that growth rate rather juicy, but the insider buying makes my mouth water. To put it succinctly; AfroCentric Investment is a strong candidate for your watchlist. It is worth noting though that we have found 1 warning sign for AfroCentric Investment that you need to take into consideration.

As a growth investor I do like to see insider buying. But AfroCentric Investment 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. 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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