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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Telecom Plus (LON:TEP). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Telecom Plus with the means to add long-term value to shareholders.
See our latest analysis for Telecom Plus
Telecom Plus' Earnings Per Share Are Growing
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Shareholders will be happy to know that Telecom Plus' EPS has grown 35% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. We note that while EBIT margins have improved from 3.4% to 6.1%, the company has actually reported a fall in revenue by 34%. 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.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Telecom Plus' forecast profits?
Are Telecom Plus 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
One gleaming positive for Telecom Plus, in the last year, is that a certain insider has buying shares with ample enthusiasm. Indeed, Non-Executive Chairman Charles Wigoder has accumulated shares over the last year, paying a total of UK£3.5m at an average price of about UK£17.70. Big insider buys like that are a rarity and should prompt discussion on the merits of the business.