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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Frontier Transport Holdings (JSE:FTH). 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 Frontier Transport Holdings
Frontier Transport Holdings' Improving Profits
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. Over the last year, Frontier Transport Holdings increased its EPS from R0.90 to R0.95. That amounts to a small improvement of 6.0%.
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. On the revenue front, Frontier Transport Holdings has done well over the past year, growing revenue by 15% to R2.4b but EBIT margin figures were less stellar, seeing a decline over the last 12 months. So it seems the future may hold further growth, especially if EBIT margins can remain steady.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Since Frontier Transport Holdings is no giant, with a market capitalisation of R1.3b, you should definitely check its cash and debt before getting too excited about its prospects.
Are Frontier Transport Holdings 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We haven't seen any insiders selling Frontier Transport Holdings shares, in the last year. With that in mind, it's heartening that Francois Meyer, the CEO & Executive Director of the company, paid R93k for shares at around R4.85 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.