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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like WestBond Enterprises (CVE:WBE). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
View our latest analysis for WestBond Enterprises
How Fast Is WestBond Enterprises Growing Its Earnings Per Share?
In the last three years WestBond Enterprises'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. Thus, it makes sense to focus on more recent growth rates, instead. Like the last firework on New Year's Eve accelerating into the sky, WestBond Enterprises's EPS shot from CA$0.025 to CA$0.066, over the last year. You don't see 170% year-on-year growth like that, very often. The best case scenario? That the business has hit a true inflection point.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. WestBond Enterprises shareholders can take confidence from the fact that EBIT margins are up from 11% to 24%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
WestBond Enterprises isn't a huge company, given its market capitalization of CA$17m. That makes it extra important to check on its balance sheet strength.
Are WestBond Enterprises Insiders Aligned With All Shareholders?
Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So as you can imagine, the fact that WestBond Enterprises insiders own a significant number of shares certainly appeals to me. In fact, they own 43% of the shares, making insiders a very influential shareholder group. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Valued at only CA$17m WestBond Enterprises is really small for a listed company. So despite a large proportional holding, insiders only have CA$7.5m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!