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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.
In contrast to all that, I prefer to spend time on companies like Pengana Capital Group (ASX:PCG), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.
Check out our latest analysis for Pengana Capital Group
How Fast Is Pengana Capital Group Growing Its Earnings Per Share?
In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Pengana Capital Group's EPS went from AU$0.072 to AU$0.25 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. Could this be a sign that the business has reached an inflection point?
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that Pengana Capital Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. The good news is that Pengana Capital Group is growing revenues, and EBIT margins improved by 18.4 percentage points to 32%, over the last year. Ticking those two boxes is a good sign of growth, in my book.
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.
Pengana Capital Group isn't a huge company, given its market capitalization of AU$176m. That makes it extra important to check on its balance sheet strength.
Are Pengana Capital Group Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Pengana Capital Group insiders have a significant amount of capital invested in the stock. Indeed, they hold AU$56m worth of its stock. That's a lot of money, and no small incentive to work hard. Those holdings account for over 32% of the company; visible skin in the game.