Is Now The Time To Put AfroCentric Investment (JSE:ACT) On Your Watchlist?

By
Simply Wall St
Published
September 05, 2021
JSE:ACT
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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 AfroCentric Investment (JSE:ACT). 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?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that AfroCentric Investment has managed to grow EPS by 31% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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 19% to R7.2b. That's a real positive.

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.

earnings-and-revenue-history
JSE:ACT Earnings and Revenue History September 5th 2021

AfroCentric Investment isn't a huge company, given its market capitalization of R2.8b. That makes it extra important to check on its balance sheet strength.

Are AfroCentric Investment Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that AfroCentric Investment insiders have a significant amount of capital invested in the stock. Indeed, they hold R202m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 7.1% of the company, demonstrating a degree of high-level alignment with shareholders.

Should You Add AfroCentric Investment To Your Watchlist?

For growth investors like me, AfroCentric Investment's raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. Of course, just because AfroCentric Investment is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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