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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In contrast to all that, I prefer to spend time on companies like 3U Holding (ETR:UUU), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Check out our latest analysis for 3U Holding
3U Holding's Improving Profits
In the last three years 3U Holding'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, 3U Holding's EPS shot from €0.033 to €0.057, over the last year. Year on year growth of 71% is certainly a sight to behold.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While 3U Holding did well to grow revenue over the last year, EBIT margins were dampened at the same time. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
3U Holding isn't a huge company, given its market capitalization of €39m. That makes it extra important to check on its balance sheet strength.
Are 3U Holding Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that 3U Holding insiders have a significant amount of capital invested in the stock. Indeed, they hold €13m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 33% of the company, demonstrating a degree of high-level alignment with shareholders.
Does 3U Holding Deserve A Spot On Your Watchlist?
3U Holding's earnings per share have taken off like a rocket aimed right at the moon. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind 3U Holding is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if 3U Holding is trading on a high P/E or a low P/E, relative to its industry.