If You Like EPS Growth Then Check Out PSG Konsult (JSE:KST) Before It's Too Late

By
Simply Wall St
Published
March 25, 2022
JSE:KST
Source: Shutterstock

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 completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like PSG Konsult (JSE:KST). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for PSG Konsult

How Quickly Is PSG Konsult 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. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years PSG Konsult grew its EPS by 8.2% per year. That's a pretty good rate, if the company can sustain it.

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. I note that PSG Konsult's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. PSG Konsult maintained stable EBIT margins over the last year, all while growing revenue 9.6% to R5.5b. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
JSE:KST Earnings and Revenue History March 25th 2022

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check PSG Konsult's balance sheet strength, before getting too excited.

Are PSG Konsult 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. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's good to see PSG Konsult insiders walking the walk, by spending R5.3m on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. It is also worth noting that it was CEO & Executive Director Francois Gouws who made the biggest single purchase, worth R3.8m, paying R10.22 per share.

On top of the insider buying, it's good to see that PSG Konsult insiders have a valuable investment in the business. Indeed, they hold R564m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 3.2% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add PSG Konsult To Your Watchlist?

One important encouraging feature of PSG Konsult is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if PSG Konsult is trading on a high P/E or a low P/E, relative to its industry.

The good news is that PSG Konsult 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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