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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like ClearView Wealth (ASX:CVW). 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.
How Fast Is ClearView Wealth Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. Recognition must be given to the that ClearView Wealth has grown EPS by 38% per year, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.
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. Not all of ClearView Wealth's revenue last year was revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. The previous 12 months are something that ClearView Wealth will want to put behind them after seeing a drop in EBIT margin and revenue for the period. Shareholders will be hoping for a change in fortunes if they're looking for profit growth.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Since ClearView Wealth is no giant, with a market capitalisation of AU$331m, you should definitely check its cash and debt before getting too excited about its prospects.
Are ClearView Wealth Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
It's nice to see that there have been no reports of any insiders selling shares in ClearView Wealth in the previous 12 months. Add in the fact that Geoff Black, the Independent Chairman of the company, paid AU$25k for shares at around AU$0.49 each. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in ClearView Wealth.
Does ClearView Wealth Deserve A Spot On Your Watchlist?
ClearView Wealth's earnings per share have been soaring, with growth rates sky high. Growth-minded people will be intrigued by the incredible movement in EPS growth. And in fact, it could well signal a fundamental shift in the business economics. If that's the case, you may regret neglecting to put ClearView Wealth on your watchlist. What about risks? Every company has them, and we've spotted 2 warning signs for ClearView Wealth (of which 1 shouldn't be ignored!) you should know about.
Keen growth investors love to see insider buying. Thankfully, ClearView Wealth 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.
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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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