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 as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like Aussie Broadband (ASX:ABB), which has not only revenues, but also profits. 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.
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Over the last three years, Aussie Broadband 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. So it would be better to isolate the growth rate over the last year for our analysis. Aussie Broadband’s EPS has risen over the last 12 months, growing from AU$0.097 to AU$0.11. That’s a 15% gain; respectable growth in the broader scheme of things.
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. Aussie Broadband maintained stable EBIT margins over the last year, all while growing revenue 19% to AU$1.2b. That’s a real positive.
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.
View our latest analysis for Aussie Broadband
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 Aussie Broadband’s future EPS 100% free.
It’s pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Aussie Broadband shares worth a considerable sum. Indeed, they have a considerable amount of wealth invested in it, currently valued at AU$160m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company’s future.