Yahoo Finance If You Like EPS Growth Then Check Out XTEK (ASX:XTE) Before It's Too Late
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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in XTEK (ASX:XTE). While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
See our latest analysis for XTEK
XTEK's Improving Profits
In the last three years XTEK's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. XTEK boosted its trailing twelve month EPS from AU$0.0035 to AU$0.004, in the last year. I doubt many would complain about that 13% gain.
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. The good news is that XTEK is growing revenues, and EBIT margins improved by 2.9 percentage points to 0.3%, over the last year. 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. To see the actual numbers, click on the chart.
XTEK isn't a huge company, given its market capitalization of AU$26m. That makes it extra important to check on its balance sheet strength.
Are XTEK Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.
One positive for XTEK, is that company insiders paid AU$72k for shares in the last year. While this isn't much, we also note an absence of sales. We also note that it was the , Mark Rack, who made the biggest single acquisition, paying AU$36k for shares at about AU$0.43 each.
Should You Add XTEK To Your Watchlist?
One important encouraging feature of XTEK is that it is growing profits. Not every business can grow its EPS, but XTEK certainly can. The cherry on top is the insider share purchases, which provide an extra impetus to keep and eye on this stock, at the very least. One of Buffett's considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing XTEK's ROE with industry peers (and the market at large).
There are plenty of other companies that have insiders buying up shares. So if you like the sound of XTEK, you'll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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