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.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 B+S Banksysteme (ETR:DTD2). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide B+S Banksysteme with the means to add long-term value to shareholders.
See our latest analysis for B+S Banksysteme
B+S Banksysteme's Improving Profits
Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. Which is why EPS growth is looked upon so favourably. It is awe-striking that B+S Banksysteme's EPS went from €0.0043 to €0.071 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement.
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 seems B+S Banksysteme is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not bad, but it doesn't point to ongoing future growth, either.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
B+S Banksysteme isn't a huge company, given its market capitalisation of €9.7m. That makes it extra important to check on its balance sheet strength.
Are B+S Banksysteme Insiders Aligned With All Shareholders?
Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So as you can imagine, the fact that B+S Banksysteme insiders own a significant number of shares certainly is appealing. In fact, they own 51% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Of course, B+S Banksysteme is a very small company, with a market cap of only €9.7m. So despite a large proportional holding, insiders only have €5.0m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!