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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Australian Agricultural Projects (ASX:AAP). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Australian Agricultural Projects with the means to add long-term value to shareholders.
How Fast Is Australian Agricultural Projects Growing Its Earnings Per Share?
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's easy to see why many investors focus in on EPS growth. In impressive fashion, Australian Agricultural Projects' EPS grew from AU$0.0018 to AU$0.0034, over the previous 12 months. It's a rarity to see 94% year-on-year growth like that. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.
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. The music to the ears of Australian Agricultural Projects shareholders is that EBIT margins have grown from 12% to 29% in the last 12 months and revenues are on an upwards trend as well. 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. Click on the chart to see the exact numbers.
ASX:AAP Earnings and Revenue History September 17th 2024
Australian Agricultural Projects isn't a huge company, given its market capitalisation of AU$13m. That makes it extra important to check on its balance sheet strength.
Are Australian Agricultural Projects 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We note that Australian Agricultural Projects insiders spent AU$77k on stock, over the last year; in contrast, we didn't see any selling. That paints the company in a nice light, as it signals that its leaders are feeling confident in where the company is heading. It is also worth noting that it was Non Executive Director Daniel Stefanetti who made the biggest single purchase, worth AU$49k, paying AU$0.015 per share.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Australian Agricultural Projects insiders own more than a third of the company. In fact, they own 52% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. Of course, Australian Agricultural Projects is a very small company, with a market cap of only AU$13m. So despite a large proportional holding, insiders only have AU$6.7m worth of stock. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Paul Challis is paid comparatively modestly to CEOs at similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Australian Agricultural Projects with market caps under AU$296m is about AU$458k.
Australian Agricultural Projects' CEO took home a total compensation package of AU$158k in the year prior to June 2023. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does Australian Agricultural Projects Deserve A Spot On Your Watchlist?
Australian Agricultural Projects' earnings have taken off in quite an impressive fashion. What's more, insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Australian Agricultural Projects deserves timely attention. Even so, be aware that Australian Agricultural Projects is showing 5 warning signs in our investment analysis, and 3 of those are concerning...
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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.
