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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 currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Austin Engineering (ASX:ANG). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
Check out our latest analysis for Austin Engineering
How Fast Is Austin Engineering Growing?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Austin Engineering has managed to grow EPS by 24% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
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. Austin Engineering maintained stable EBIT margins over the last year, all while growing revenue 21% to AU$288m. That's encouraging news for the company!
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Since Austin Engineering is no giant, with a market capitalisation of AU$240m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Austin Engineering Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
The good news for Austin Engineering shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that CEO, MD & Director David Patrick Singleton bought AU$50k worth of shares at an average price of around AU$0.27. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Austin Engineering.