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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.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Admiral Group (LON:ADM). 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 Admiral Group
Admiral Group's Improving Profits
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Impressively, Admiral Group's EPS catapulted from UK£1.11 to UK£2.21, over the last year. It's a rarity to see 98% year-on-year growth like that. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.
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. Not all of Admiral Group's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. The good news is that Admiral Group is growing revenues, and EBIT margins improved by 3.5 percentage points to 17%, over the last year. That's great to see, on both counts.
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.
Fortunately, we've got access to analyst forecasts of Admiral Group's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Admiral Group Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a UK£9.2b company like Admiral Group. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Indeed, they have a considerable amount of wealth invested in it, currently valued at UK£629m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!