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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. 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. 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.
In contrast to all that, many investors prefer to focus on companies like Scales (NZSE:SCL), which has not only revenues, but also profits. 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 Scales
Scales' Improving Profits
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's easy to see why many investors focus in on EPS growth. It is awe-striking that Scales' EPS went from NZ$0.037 to NZ$0.21 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future.
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 Scales shareholders is that EBIT margins have grown from 6.6% to 10% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Scales?
Are Scales 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. 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.
Not only did Scales insiders refrain from selling stock during the year, but they also spent NZ$211k buying it. This is a good look for the company as it paints an optimistic picture for the future. Zooming in, we can see that the biggest insider purchase was by Non-Executive Independent Director Miranda Burdon for NZ$194k worth of shares, at about NZ$3.53 per share.