Do Santova's (JSE:SNV) Earnings Warrant Your Attention?

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. 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.

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

View our latest analysis for Santova

How Fast Is Santova Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Impressively, Santova has grown EPS by 18% per year, compound, in the last 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. Not all of Santova's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. The good news is that Santova is growing revenues, and EBIT margins improved by 3.7 percentage points to 29%, over the last year. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

Since Santova is no giant, with a market capitalization of R709m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Santova Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

In the last twelve months Santova insiders spent R707k on stock; good news for shareholders. While this isn't much, we also note an absence of sales. It is also worth noting that it was Executive Director Anthony van Zyl who made the biggest single purchase, worth R475k, paying R4.60 per share.

Should You Add Santova To Your Watchlist?

You can't deny that Santova has grown its earnings per share at a very impressive rate. That's attractive. Not only is that growth rate rather juicy, but the insider buying makes my mouth water. So on this analysis I believe Santova is probably worth spending some time on. It is worth noting though that we have found 2 warning signs for Santova that you need to take into consideration.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Santova, you'll probably love this free list of growing companies that insiders are buying.

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.