Like a puppy chasing its tail, some new investors often chase ‘the next big thing’, even if that means buying ‘story stocks’ without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
So if you’re like me, you might be more interested in profitable, growing companies, like Manx Financial Group (LON:MFX). Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Check out our latest analysis for Manx Financial Group
How Quickly Is Manx Financial Group Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Manx Financial Group managed to grow EPS by 17% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Not all of Manx Financial Group’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. Manx Financial Group maintained stable EBIT margins over the last year, all while growing revenue 9.8% to UK£20m. That’s progress.
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.
Since Manx Financial Group is no giant, with a market capitalization of UK£9.5m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Manx Financial Group Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Manx Financial Group insiders own a significant number of shares certainly appeals to me. Actually, with 36% of the company to their names, insiders are profoundly invested in the business. I’m reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Of course, Manx Financial Group is a very small company, with a market cap of only UK£9.5m. So despite a large proportional holding, insiders only have UK£3.5m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I’d say they are indeed. I discovered that the median total compensation for the CEOs of companies like Manx Financial Group with market caps under UK£153m is about UK£274k.
The Manx Financial Group CEO received total compensation of only UK£25k in the year to . This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO – that is often a good sign. While the level of CEO compensation isn’t a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I’d also argue reasonable pay levels attest to good decision making more generally.
Is Manx Financial Group Worth Keeping An Eye On?
One positive for Manx Financial Group is that it is growing EPS. That’s nice to see. The fact that EPS is growing is a genuine positive for Manx Financial Group, but the pretty picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, I’d argue this one is worthy of the watchlist, at least. You still need to take note of risks, for example – Manx Financial Group has 3 warning signs we think you should be aware of.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
This article by Simply Wall St is general in nature. 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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