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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. 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 Duratec (ASX:DUR). 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.
See our latest analysis for Duratec
How Quickly Is Duratec Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Duratec's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 38%. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.
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. EBIT margins for Duratec remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 13% to AU$556m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Duratec's future profits.
Are Duratec Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
A great takeaway for shareholders is that company insiders within Duratec have collectively spent AU$46k acquiring shares in the company. While this investment may be modest, it is great considering the lack of insider selling.