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Should You Be Adding Webjet (ASX:WEB) To Your Watchlist Today?

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone 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 Webjet (ASX:WEB), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Webjet

How Quickly Is Webjet Increasing Earnings Per Share?

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. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Webjet has managed to grow EPS by 22% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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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. Webjet's EBIT margins have actually improved by 15.7 percentage points in the last year, to reach 24%, but, on the flip side, revenue was down 52%. That's not ideal.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

ASX:WEB Income Statement, January 2nd 2020
ASX:WEB Income Statement, January 2nd 2020

Fortunately, we've got access to analyst forecasts of Webjet's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Webjet Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's good to see Webjet insiders walking the walk, by spending AU$812k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. We also note that it was the MD & Executive Director, John Guscic, who made the biggest single acquisition, paying AU$397k for shares at about AU$11.35 each.

On top of the insider buying, it's good to see that Webjet insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at AU$218m. That equates to 12% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.

Does Webjet Deserve A Spot On Your Watchlist?

You can't deny that Webjet has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Webjet. You might benefit from giving it a glance today.

As a growth investor I do like to see insider buying. But Webjet 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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.