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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Hudaco Industries (JSE:HDC). 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 Hudaco Industries
Hudaco Industries' Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Hudaco Industries grew its EPS by 16% per year. That's a pretty good rate, if the company can sustain it.
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. Hudaco Industries maintained stable EBIT margins over the last year, all while growing revenue 12% to R8.2b. That's encouraging news for the company!
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.
Since Hudaco Industries is no giant, with a market capitalisation of R4.1b, you should definitely check its cash and debt before getting too excited about its prospects.
Are Hudaco Industries Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.
In the last year insider at Hudaco Industries were both selling and buying shares; but happily, as a group they spent R2.2m more on stock, than they netted from selling it. Shareholders who may have questioned insiders selling will find some reassurance in this fact. It is also worth noting that it was CEO & Executive Director Graham Dunford who made the biggest single purchase, worth R8.3m, paying R169 per share.