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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 Vitalhub (TSE:VHI). 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.
In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. Which is why EPS growth is looked upon so favourably. It's an outstanding feat for Vitalhub to have grown EPS from CA$0.011 to CA$0.093 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. Could this be a sign that the business has reached an inflection point?
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. The good news is that Vitalhub is growing revenues, and EBIT margins improved by 6.0 percentage points to 15%, over the last year. Ticking those two boxes is a good sign of growth, in our book.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
TSX:VHI Earnings and Revenue History October 31st 2024
Are Vitalhub 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
The good news for Vitalhub is that one insider has illustrated their belief in the company's future with a huge purchase of shares in the last 12 months. Indeed, Chairman of the Board Francis Shen has accumulated shares over the last year, paying a total of CA$1.5m at an average price of about CA$6.00. It doesn't get much better than that, in terms of large investments from insiders.
The good news, alongside the insider buying, for Vitalhub bulls is that insiders (collectively) have a meaningful investment in the stock. Given insiders own a significant chunk of shares, currently valued at CA$71m, they have plenty of motivation to push the business to succeed. Amounting to 15% of the outstanding shares, indicating that insiders are also significantly impacted by the decisions they make on the behalf of the business.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Dan Matlow, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Vitalhub with market caps between CA$278m and CA$1.1b is about CA$1.6m.
Vitalhub offered total compensation worth CA$836k to its CEO in the year to December 2023. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Does Vitalhub Deserve A Spot On Your Watchlist?
Vitalhub's earnings per share growth have been climbing higher at an appreciable rate. The icing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Vitalhub belongs near the top of your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Vitalhub , and understanding these should be part of your investment process.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
