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Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like nib holdings (ASX:NHF). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide nib holdings with the means to add long-term value to shareholders.
See our latest analysis for nib holdings
nib holdings' Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Impressively, nib holdings has grown EPS by 28% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
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 nib holdings' revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. nib holdings shareholders can take confidence from the fact that EBIT margins are up from 7.5% to 9.9%, and revenue is growing. Both of which are great metrics to check off for potential growth.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for nib holdings?
Are nib holdings Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that nib holdings insiders have a significant amount of capital invested in the stock. To be specific, they have AU$28m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 0.8%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.