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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 currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Tsogo Sun (JSE:TSG). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
Check out our latest analysis for Tsogo Sun
Tsogo Sun's Improving Profits
Tsogo Sun has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Tsogo Sun boosted its trailing twelve month EPS from R1.67 to R1.89, in the last year. That's a 13% gain; respectable growth in the broader scheme of things.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that Tsogo Sun's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While we note Tsogo Sun achieved similar EBIT margins to last year, revenue grew by a solid 11% to R12b. That's encouraging news for the company!
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
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 Tsogo Sun's balance sheet strength, before getting too excited.
Are Tsogo Sun Insiders Aligned With All Shareholders?
It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Tsogo Sun followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. As a matter of fact, their holding is valued at R332m. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 2.9% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.