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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn’t suit, you might be more interested in profitable, growing companies, like Austco Healthcare (ASX:AHC). 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.
See our latest analysis for Austco Healthcare
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Austco Healthcare has managed to grow EPS by 19% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. The good news is that Austco Healthcare is growing revenues, and EBIT margins improved by 8.9 percentage points to 13%, over the last year. That’s great to see, on both counts.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
Since Austco Healthcare is no giant, with a market capitalisation of AU$100m, you should definitely check its cash and debt before getting too excited about its prospects.
It’s pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Austco Healthcare shares worth a considerable sum. Indeed, they hold AU$27m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 27% of the shares on issue for the business, an appreciable amount considering the market cap.
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