The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Ferretti (HKG:9638). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for Ferretti
How Quickly Is Ferretti Increasing Earnings Per Share?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. To the delight of shareholders, Ferretti has achieved impressive annual EPS growth of 41%, compound, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
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 Ferretti is growing revenues, and EBIT margins improved by 2.3 percentage points to 7.9%, over the last year. Both of which are great metrics to check off for potential growth.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
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 Ferretti's future profits.
Are Ferretti 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
One gleaming positive for Ferretti, in the last year, is that a certain insider has buying shares with ample enthusiasm. In one fell swoop, company insider Karel Komarek, spent HK$429m, at a price of HK$25.56 per share. It doesn't get much better than that, in terms of large investments from insiders.
On top of the insider buying, it's good to see that Ferretti insiders have a valuable investment in the business. Notably, they have an enviable stake in the company, worth €1.4b. This totals to 16% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.
Should You Add Ferretti To Your Watchlist?
Ferretti's earnings per share growth have been climbing higher at an appreciable rate. To sweeten the deal, insiders have significant skin in the game with one even acquiring more. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Ferretti belongs near the top of your watchlist. It is worth noting though that we have found 2 warning signs for Ferretti (1 makes us a bit uncomfortable!) that you need to take into consideration.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Ferretti, you'll probably love this curated collection of companies in HK that have an attractive valuation 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.