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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. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 Step One Clothing (ASX:STP). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Step One Clothing with the means to add long-term value to shareholders.
Check out our latest analysis for Step One Clothing
Step One Clothing's Improving Profits
Step One Clothing has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. Step One Clothing's EPS skyrocketed from AU$0.046 to AU$0.068, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 46%.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. The music to the ears of Step One Clothing shareholders is that EBIT margins have grown from 17% to 22% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.
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.
Since Step One Clothing is no giant, with a market capitalisation of AU$334m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Step One Clothing 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 we're pleased to report that Step One Clothing insiders own a meaningful share of the business. To be exact, company insiders hold 72% of the company, so their decisions have a significant impact on their investments. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. In terms of absolute value, insiders have AU$242m invested in the business, at the current share price. That should be more than enough to keep them focussed on creating shareholder value!