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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 XRF Scientific (ASX:XRF), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide XRF Scientific with the means to add long-term value to shareholders.
View our latest analysis for XRF Scientific
How Fast Is XRF Scientific Growing?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that XRF Scientific has managed to grow EPS by 19% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
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. EBIT margins for XRF Scientific remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 8.8% to AU$60m. 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 XRF Scientific is no giant, with a market capitalisation of AU$230m, you should definitely check its cash and debt before getting too excited about its prospects.
Are XRF Scientific Insiders Aligned With All Shareholders?
It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. XRF Scientific followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they hold AU$52m worth of its stock. This considerable investment should help drive long-term value in the business. That amounts to 23% of the company, demonstrating a degree of high-level alignment with shareholders.