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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. 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. 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 SHAPE Australia (ASX:SHA), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
Check out our latest analysis for SHAPE Australia
SHAPE Australia's Improving Profits
Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. Outstandingly, SHAPE Australia's EPS shot from AU$0.074 to AU$0.16, over the last year. It's a rarity to see 117% year-on-year growth like that.
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. While we note SHAPE Australia achieved similar EBIT margins to last year, revenue grew by a solid 10% to AU$841m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Since SHAPE Australia is no giant, with a market capitalisation of AU$198m, you should definitely check its cash and debt before getting too excited about its prospects.
Are SHAPE Australia Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
We note that SHAPE Australia insiders spent AU$85k on stock, over the last year; in contrast, we didn't see any selling. That's nice to see, because it suggests insiders are optimistic. We also note that it was the Non-Executive Director, Kathryn Parsons, who made the biggest single acquisition, paying AU$23k for shares at about AU$1.91 each.