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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
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 Bell Equipment (JSE:BEL). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Bell Equipment with the means to add long-term value to shareholders.
View our latest analysis for Bell Equipment
Bell Equipment'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 EPS growth can certainly encourage an investor to take note of a stock. Outstandingly, Bell Equipment's EPS shot from R1.57 to R3.33, over the last year. Year on year growth of 111% is certainly a sight to behold.
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. Bell Equipment maintained stable EBIT margins over the last year, all while growing revenue 13% to R8.4b. That's encouraging news for the company!
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.
Bell Equipment isn't a huge company, given its market capitalisation of R1.4b. That makes it extra important to check on its balance sheet strength.
Are Bell Equipment Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
It's nice to see that there have been no reports of any insiders selling shares in Bell Equipment in the previous 12 months. Add in the fact that Leon Goosen, the Group Chief Executive & Executive Director of the company, paid R205k for shares at around R12.82 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.