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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Time Finance (LON:TIME). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Time Finance with the means to add long-term value to shareholders.
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If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that Time Finance has grown EPS by 51% per year, 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.
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. Our analysis has highlighted that Time Finance's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. While we note Time Finance achieved similar EBIT margins to last year, revenue grew by a solid 17% to UK£36m. That's a real positive.
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.
View our latest analysis for Time Finance
Since Time Finance is no giant, with a market capitalisation of UK£51m, you should definitely check its cash and debt before getting too excited about its prospects.
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.