In This Article:
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 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Orica (ASX:ORI). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Check out our latest analysis for Orica
Orica's Improving Profits
In the last three years Orica'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. To the delight of shareholders, Orica's EPS soared from AU$0.65 to AU$1.08, over the last year. That's a fantastic gain of 65%.
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. Orica's EBIT margins are flat but, worryingly, its revenue is actually down. Suffice it to say that is not a great sign of growth.
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.
Fortunately, we've got access to analyst forecasts of Orica's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Orica 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. 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.
The good news for Orica shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that Vanessa Guthrie, the Independent Non-Executive Director of the company, paid AU$71k for shares at around AU$18.00 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.