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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.
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 On the Beach Group (LON:OTB). 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.
Check out our latest analysis for On the Beach Group
On the Beach Group's Improving Profits
In the last three years On the Beach Group's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, On the Beach Group's EPS grew from UK£0.064 to UK£0.12, over the previous 12 months. Year on year growth of 90% 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. Unfortunately, On the Beach Group's revenue dropped 25% last year, but the silver lining is that EBIT margins improved from 8.2% to 20%. That's not a good look.
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.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for On the Beach Group's future EPS 100% free.
Are On the Beach Group Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.
We do note that, in the last year, insiders sold UK£101k worth of shares. But that's far less than the UK£7.0m insiders spent purchasing stock. This adds to the interest in On the Beach Group because it suggests that those who understand the company best, are optimistic. It is also worth noting that it was Founder & Non-Executive Director Simon Cooper who made the biggest single purchase, worth UK£6.8m, paying UK£2.28 per share.