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The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Ingenta (LON:ING). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Ingenta with the means to add long-term value to shareholders.
Check out our latest analysis for Ingenta
Ingenta's Improving Profits
In the last three years Ingenta's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Ingenta's EPS shot up from UK£0.12 to UK£0.17; a result that's bound to keep shareholders happy. That's a commendable gain of 39%.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Ingenta shareholders can take confidence from the fact that EBIT margins are up from 8.8% to 20%, and revenue is growing. That's great to see, on both counts.
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.
Ingenta isn't a huge company, given its market capitalisation of UK£23m. That makes it extra important to check on its balance sheet strength.
Are Ingenta Insiders Aligned With All Shareholders?
Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So we're pleased to report that Ingenta insiders own a meaningful share of the business. Owning 36% of the company, insiders have plenty riding on the performance of the the share price. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. Valued at only UK£23m Ingenta is really small for a listed company. That means insiders only have UK£8.3m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!