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Here's Why We Think MotorCycle Holdings (ASX:MTO) Might Deserve Your Attention Today

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 currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like MotorCycle Holdings (ASX:MTO). 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 MotorCycle Holdings

How Fast Is MotorCycle Holdings Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that MotorCycle Holdings' EPS has grown 36% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note MotorCycle Holdings achieved similar EBIT margins to last year, revenue grew by a solid 11% to AU$447m. That's a real positive.

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

earnings-and-revenue-history
earnings-and-revenue-history

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

Are MotorCycle Holdings Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

MotorCycle Holdings insiders both bought and sold shares over the last twelve months, but they did end up spending AU$72k more on stock than they received from selling it. At face value we can consider this a fairly encouraging sign for the company. Zooming in, we can see that the biggest insider purchase was by Co-Founder David Ahmet for AU$64k worth of shares, at about AU$2.97 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since MotorCycle Holdings insiders own more than a third of the company. In fact, they own 36% of the shares, making insiders a very influential shareholder group. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. To give you an idea, the value of insiders' holdings in the business are valued at AU$53m at the current share price. So there's plenty there to keep them focused!

Is MotorCycle Holdings Worth Keeping An Eye On?

For growth investors, MotorCycle Holdings' 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. Astute investors will want to keep this stock on watch. However, before you get too excited we've discovered 2 warning signs for MotorCycle Holdings (1 is potentially serious!) that you should be aware of.

The good news is that MotorCycle Holdings is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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