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It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 Acumentis Group (ASX:ACU). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
See our latest analysis for Acumentis Group
Acumentis Group's Improving Profits
In the last three years Acumentis Group's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, Acumentis Group's EPS grew from AU$0.0023 to AU$0.0064, over the previous 12 months. It's not often a company can achieve year-on-year growth of 184%.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Acumentis Group achieved similar EBIT margins to last year, revenue grew by a solid 4.6% to AU$56m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Since Acumentis Group is no giant, with a market capitalisation of AU$18m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Acumentis Group Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, 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.
Not only did Acumentis Group insiders refrain from selling stock during the year, but they also spent AU$217k buying it. This is a good look for the company as it paints an optimistic picture for the future. It is also worth noting that it was company insider Noel Kagi who made the biggest single purchase, worth AU$203k, paying AU$0.073 per share.