FirstRand (JSE:FSR) Ticks All The Boxes When It Comes To Earnings Growth

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 FirstRand (JSE:FSR). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for FirstRand

FirstRand's Earnings Per Share Are Growing

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) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. FirstRand managed to grow EPS by 7.1% per year, over three years. This may not be setting the world alight, but it does show that EPS is on the upwards trend.

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. It's noted that FirstRand's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for FirstRand remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 12% to R115b. 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.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of FirstRand's forecast profits?

Are FirstRand Insiders Aligned With All Shareholders?

Owing to the size of FirstRand, we wouldn't expect insiders to hold a significant proportion of the company. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. With a whopping R1.4b worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to let shareholders know that management will be very focussed on long term growth.

Should You Add FirstRand To Your Watchlist?

One positive for FirstRand is that it is growing EPS. That's nice to see. To add an extra spark to the fire, significant insider ownership in the company is another highlight. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. Before you take the next step you should know about the 1 warning sign for FirstRand that we have uncovered.

Although FirstRand certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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. 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.