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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. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 GR Engineering Services (ASX:GNG). 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 GR Engineering Services
How Quickly Is GR Engineering Services 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. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years GR Engineering Services grew its EPS by 11% per year. That's a pretty good rate, if the company can sustain it.
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. GR Engineering Services' EBIT margins have actually improved by 4.0 percentage points in the last year, to reach 10%, but, on the flip side, revenue was down 23%. While not disastrous, these figures could be better.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Since GR Engineering Services is no giant, with a market capitalisation of AU$336m, you should definitely check its cash and debt before getting too excited about its prospects.
Are GR Engineering Services Insiders Aligned With All Shareholders?
Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So as you can imagine, the fact that GR Engineering Services insiders own a significant number of shares certainly is appealing. Actually, with 36% of the company to their names, insiders are profoundly invested in the business. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. To give you an idea, the value of insiders' holdings in the business are valued at AU$119m at the current share price. That should be more than enough to keep them focussed on creating shareholder value!