Does Alpha FX Group (LON:AFX) Deserve A Spot On Your Watchlist?
Simply Wall St
4 min read
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. 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.
So if you're like me, you might be more interested in profitable, growing companies, like Alpha FX Group (LON:AFX). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, Alpha FX Group's EPS has grown 34% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Alpha FX Group maintained stable EBIT margins over the last year, all while growing revenue 68% to UK£77m. That's progress.
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.
AIM:AFX Earnings and Revenue History May 2nd 2022
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Alpha FX Group's balance sheet strength, before getting too excited.
Are Alpha FX Group Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Despite -UK£20k worth of sales, Alpha FX Group insiders have overwhelmingly been buying the stock, spending UK£280k on purchases in the last twelve months. You could argue that level of buying implies genuine confidence in the business. It is also worth noting that it was Independent Non-Executive Chairman Clive Kahn who made the biggest single purchase, worth UK£139k, paying UK£17.50 per share.
Along with the insider buying, another encouraging sign for Alpha FX Group is that insiders, as a group, have a considerable shareholding. Indeed, they have a glittering mountain of wealth invested in it, currently valued at UK£199m. That equates to 23% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Morgan Tillbrook is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between UK£319m and UK£1.3b, like Alpha FX Group, the median CEO pay is around UK£1.1m.
The Alpha FX Group CEO received UK£694k in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.
Is Alpha FX Group Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Alpha FX Group's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. We should say that we've discovered 2 warning signs for Alpha FX Group that you should be aware of before investing here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
