In This Article:
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.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
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 Orchard Funding Group (LON:ORCH). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
How Fast Is Orchard Funding Group Growing?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Orchard Funding Group has managed to grow EPS by 25% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. It's noted that Orchard Funding Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for Orchard Funding Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 10% to UK£7.2m. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
View our latest analysis for Orchard Funding Group
Since Orchard Funding Group is no giant, with a market capitalisation of UK£8.5m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Orchard Funding Group Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So those who are interested in Orchard Funding Group will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Indeed, with a collective holding of 57%, company insiders are in control and have plenty of capital behind the venture. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Of course, Orchard Funding Group is a very small company, with a market cap of only UK£8.5m. So despite a large proportional holding, insiders only have UK£4.9m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!