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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 completely 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.'
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Titanium Oyj (HEL:TITAN). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Check out our latest analysis for Titanium Oyj
Titanium Oyj's Improving Profits
In the last three years Titanium Oyj's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like the last firework on New Year's Eve accelerating into the sky, Titanium Oyj's EPS shot from €0.26 to €0.66, over the last year. Year on year growth of 153% is certainly a sight to behold.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Titanium Oyj maintained stable EBIT margins over the last year, all while growing revenue 64% to €17m. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Since Titanium Oyj is no giant, with a market capitalization of €81m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Titanium Oyj Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Titanium Oyj insiders own a significant number of shares certainly appeals to me. Indeed, with a collective holding of 51%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have €41m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!