Yahoo Finance If You Like EPS Growth Then Check Out TPC Consolidated (ASX:TPC) Before It's Too Late
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
In contrast to all that, I prefer to spend time on companies like TPC Consolidated (ASX:TPC), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.
View our latest analysis for TPC Consolidated
TPC Consolidated's Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud TPC Consolidated's stratospheric annual EPS growth of 59%, compound, over the last three years? That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.
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. TPC Consolidated maintained stable EBIT margins over the last year, all while growing revenue 3.6% to AU$86m. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
TPC Consolidated isn't a huge company, given its market capitalization of AU$18m. That makes it extra important to check on its balance sheet strength.
Are TPC Consolidated Insiders Aligned With All Shareholders?
Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So we're pleased to report that TPC Consolidated insiders own a meaningful share of the business. In fact, they own 72% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Of course, TPC Consolidated is a very small company, with a market cap of only AU$18m. That means insiders only have AU$13m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!
Does TPC Consolidated Deserve A Spot On Your Watchlist?
TPC Consolidated's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So to my mind TPC Consolidated is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. You should always think about risks though. Case in point, we've spotted 1 warning sign for TPC Consolidated you should be aware of.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access 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. 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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