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 completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In contrast to all that, I prefer to spend time on companies like Pengana Capital Group (ASX:PCG), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Fast Is Pengana Capital Group Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. Over the last three years, Pengana Capital Group has grown EPS by 5.2% per year. While that sort of growth rate isn't amazing, it does show the business is growing.
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. I note that Pengana Capital Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Pengana Capital Group shareholders can take confidence from the fact that EBIT margins are up from 14% to 21%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Pengana Capital Group isn't a huge company, given its market capitalization of AU$189m. That makes it extra important to check on its balance sheet strength.
Are Pengana Capital Group Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, 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 Pengana Capital Group insiders spent AU$243k on stock, over the last year; in contrast, we didn't see any selling. That puts the company in a nice light, as it makes me think its leaders are feeling confident. We also note that it was the Non-Executive Independent Director, Kevin Eley, who made the biggest single acquisition, paying AU$90k for shares at about AU$1.81 each.
The good news, alongside the insider buying, for Pengana Capital Group bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have AU$59m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 31% of the company; visible skin in the game.
Does Pengana Capital Group Deserve A Spot On Your Watchlist?
As I already mentioned, Pengana Capital Group is a growing business, which is what I like to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. You should always think about risks though. Case in point, we've spotted 3 warning signs for Pengana Capital Group you should be aware of.
As a growth investor I do like to see insider buying. But Pengana Capital Group isn't the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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.
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