Lovisa Holdings (ASX:LOV) Ticks All The Boxes When It Comes To Earnings Growth

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editorial-team@simplywallst.com (Simply Wall St)

Mon, Sep 25, 2023, 9:45 PM 4 min read

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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 Lovisa Holdings (ASX:LOV). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Lovisa Holdings with the means to add long-term value to shareholders.

See our latest analysis for Lovisa Holdings

Lovisa Holdings' Improving Profits

Over the last three years, Lovisa Holdings has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. It's good to see that Lovisa Holdings' EPS has grown from AU$0.54 to AU$0.62 over twelve months. That's a 15% gain; respectable growth in the broader scheme of things.

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. While we note Lovisa Holdings achieved similar EBIT margins to last year, revenue grew by a solid 30% to AU$596m. That's progress.

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.

earnings-and-revenue-history — ASX:LOV Earnings and Revenue History September 26th 2023

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Lovisa Holdings' future EPS 100% free.

Are Lovisa Holdings Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

We note that Lovisa Holdings insiders spent AU$211k on stock, over the last year; in contrast, we didn't see any selling. That's nice to see, because it suggests insiders are optimistic. It is also worth noting that it was Independent Director Bruce Carter who made the biggest single purchase, worth AU$116k, paying AU$23.28 per share.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Lovisa Holdings will reveal that insiders own a significant piece of the pie. Owning 43% of the company, insiders have plenty riding on the performance of the the share price. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. At the current share price, that insider holding is worth a staggering AU$923m. That level of investment from insiders is nothing to sneeze at.

Does Lovisa Holdings Deserve A Spot On Your Watchlist?

One positive for Lovisa Holdings is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for your watchlist - and arguably a research priority. We should say that we've discovered 1 warning sign for Lovisa Holdings that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Lovisa Holdings, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.