Yahoo Finance With EPS Growth And More, Gaming Realms (LON:GMR) Makes An Interesting Case
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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Gaming Realms (LON:GMR). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
See our latest analysis for Gaming Realms
Gaming Realms' Improving Profits
In the last three years Gaming Realms' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. Gaming Realms' EPS shot up from UK£0.012 to UK£0.02; a result that's bound to keep shareholders happy. That's a impressive gain of 62%.
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. Gaming Realms shareholders can take confidence from the fact that EBIT margins are up from 19% to 22%, and revenue is growing. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Gaming Realms' future profits.
Are Gaming Realms 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. Because often, 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.
It's good to see Gaming Realms insiders walking the walk, by spending UK£314k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. We also note that it was the Independent Non Executive Director, Mark Blandford, who made the biggest single acquisition, paying UK£180k for shares at about UK£0.35 each.
On top of the insider buying, it's good to see that Gaming Realms insiders have a valuable investment in the business. Indeed, they hold UK£20m worth of its stock. That's a lot of money, and no small incentive to work hard. As a percentage, this totals to 20% of the shares on issue for the business, an appreciable amount considering the market cap.
Should You Add Gaming Realms To Your Watchlist?
For growth investors, Gaming Realms' raw rate of earnings growth is a beacon in the night. 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 that this stock may well deserve a spot on your watchlist. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Gaming Realms is trading on a high P/E or a low P/E, relative to its industry.
Keen growth investors love to see insider buying. Thankfully, Gaming Realms isn't the only one. You can see a a curated list of British companies which have exhibited consistent growth accompanied by recent insider buying.
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.
