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It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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.
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 Southern Cross Electrical Engineering (ASX:SXE). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Southern Cross Electrical Engineering with the means to add long-term value to shareholders.
Check out our latest analysis for Southern Cross Electrical Engineering
Southern Cross Electrical Engineering's 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. In previous twelve months, Southern Cross Electrical Engineering's EPS has risen from AU$0.056 to AU$0.058. That's a modest gain of 5.2%.
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. EBIT margins for Southern Cross Electrical Engineering remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 49% to AU$553m. 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 Southern Cross Electrical Engineering is no giant, with a market capitalisation of AU$184m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Southern Cross Electrical Engineering 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But the bigger deal is that the Independent Non-Executive Director, Karl Paganin, paid AU$85k to buy shares at an average price of AU$0.64. Strong buying like that could be a sign of opportunity.