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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
So if you're like me, you might be more interested in profitable, growing companies, like Airtel Africa (LON:AAF). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
See our latest analysis for Airtel Africa
How Fast Is Airtel Africa Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, Airtel Africa has grown EPS by 8.7% per year. That's a good rate of growth, if it can be sustained.
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. Airtel Africa shareholders can take confidence from the fact that EBIT margins are up from 28% to 33%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
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.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Airtel Africa?
Are Airtel Africa Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Airtel Africa top brass are certainly in sync, not having sold any shares, over the last year. But my excitement comes from the US$50k that Independent Non-Executive Director Ravi Rajagopal spent buying shares (at an average price of about US$1.40).
Does Airtel Africa Deserve A Spot On Your Watchlist?
As I already mentioned, Airtel Africa is a growing business, which is what I like to see. Not every business can grow its EPS, but Airtel Africa certainly can. The icing on the cake is that an insider bought shares during the year, which inclines me to put this one on a watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Airtel Africa , and understanding these should be part of your investment process.