Yahoo Finance Is Now The Time To Put 3i Group (LON:III) On Your Watchlist?
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. 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
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 3i Group (LON:III). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
Check out our latest analysis for 3i Group
3i Group's Improving Profits
Over the last three years, 3i Group has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. To the delight of shareholders, 3i Group's EPS soared from UK£3.71 to UK£4.65, over the last year. That's a commendable gain of 25%.
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. It's noted that 3i Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for 3i Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 27% to UK£4.7b. That's encouraging news for the company!
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.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for 3i Group's future EPS 100% free.
Are 3i Group 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.
The UK£74k worth of shares that insiders sold during the last 12 months pales in comparison to the UK£721k they spent on acquiring shares in the company. This adds to the interest in 3i Group because it suggests that those who understand the company best, are optimistic. We also note that it was the Independent Chairman of the Board, David A. Hutchison, who made the biggest single acquisition, paying UK£230k for shares at about UK£16.34 each.
Along with the insider buying, another encouraging sign for 3i Group is that insiders, as a group, have a considerable shareholding. Notably, they have an enviable stake in the company, worth UK£402m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!
Should You Add 3i Group To Your Watchlist?
You can't deny that 3i Group has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. These things considered, this is one stock worth watching. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with 3i Group (at least 2 which are a bit concerning) , and understanding them should be part of your investment process.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of 3i Group, you'll probably love this curated collection of companies in GB that have witnessed growth alongside insider buying in the last three months.
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.
