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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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
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 Grand Canyon Education (NASDAQ:LOPE). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
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How Fast Is Grand Canyon Education Growing?
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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Grand Canyon Education grew its EPS by 12% per year. That growth rate is fairly good, assuming the company can keep it up.
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. Grand Canyon Education maintained stable EBIT margins over the last year, all while growing revenue 6.3% to US$1.0b. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
See our latest analysis for Grand Canyon Education
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Grand Canyon Education.
Are Grand Canyon Education Insiders Aligned With All Shareholders?
Owing to the size of Grand Canyon Education, we wouldn't expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. We note that their impressive stake in the company is worth US$107m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.