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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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
In contrast to all that, many investors prefer to focus on companies like Environmental Group (ASX:EGL), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for Environmental Group
Environmental Group's Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that Environmental Group has grown EPS by 41% per year, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note Environmental Group achieved similar EBIT margins to last year, revenue grew by a solid 25% to AU$89m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Since Environmental Group is no giant, with a market capitalisation of AU$128m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Environmental Group Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Environmental Group insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at AU$33m. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 26% of the company; visible skin in the game.
Is Environmental Group Worth Keeping An Eye On?
Environmental Group's earnings have taken off in quite an impressive fashion. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. Based on the sum of its parts, we definitely think its worth watching Environmental Group very closely. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Environmental Group , and understanding this should be part of your investment process.