I Built A List Of Growing Companies And AfroCentric Investment (JSE:ACT) Made The Cut

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. 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.

So if you're like me, you might be more interested in profitable, growing companies, like AfroCentric Investment (JSE:ACT). 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.

View 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that AfroCentric Investment has managed to grow EPS by 36% per year 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.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. AfroCentric Investment maintained stable EBIT margins over the last year, all while growing revenue 22% to R6.4b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

AfroCentric Investment isn't a huge company, given its market capitalization of R2.6b. That makes it extra important to check on its balance sheet strength.

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. 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.

The good news for AfroCentric Investment shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Group CEO & Executive Director Ahmed Banderker bought R277k worth of shares at an average price of around R2.73.

The good news, alongside the insider buying, for AfroCentric Investment bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have R189m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 7.4% of the company, demonstrating a degree of high-level alignment with shareholders.

Is AfroCentric Investment Worth Keeping An Eye On?

You can't deny that AfroCentric Investment has grown its earnings per share at a very impressive rate. That's attractive. Better still, insiders own a large chunk of the company and one has even been buying more shares. So I do think this is one stock worth watching. We should say that we've discovered 1 warning sign for AfroCentric Investment that you should be aware of before investing here.

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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