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Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Star Combo Pharma (ASX:S66). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Star Combo Pharma's Improving Profits
Over the last three years, Star Combo Pharma has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. Impressively, Star Combo Pharma's EPS catapulted from AU$0.0036 to AU$0.0066, over the last year. Year on year growth of 85% 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. While Star Combo Pharma did well to grow revenue over the last year, EBIT margins were dampened at the same time. If EBIT margins are able to stay balanced and this revenue growth continues, then we should see brighter days ahead.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
See our latest analysis for Star Combo Pharma
Since Star Combo Pharma is no giant, with a market capitalisation of AU$18m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Star Combo Pharma Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Star Combo Pharma insiders own a significant number of shares certainly is appealing. Actually, with 43% of the company to their names, insiders are profoundly invested in the business. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Although, with Star Combo Pharma being valued at AU$18m, this is a small company we're talking about. So this large proportion of shares owned by insiders only amounts to AU$7.5m. That might not be a huge sum but it should be enough to keep insiders motivated!