Many investors, especially inexperienced ones, often buy stocks in companies with a good history, even when those companies are making losses. Unfortunately, the likelihood of these high-risk investments ever paying off is often very low, and many investors have to learn their lesson. A well-financed company may be losing money for years, but it must eventually make a profit, otherwise investors will pull out and the company will wither away.
Although we are in the era of high-sky investing in technology stocks, many investors still follow a more traditional strategy. They buy shares of profitable companies such as Card Factory (LON:CARD). While this doesn’t necessarily mean the company is undervalued, the company’s profitability is enough to justify some appreciation in value – especially if it is growing.
Check out our latest analysis for Card Factory
Card Factory increases profit
Over the last three years, Card Factory’s earnings per share have soared; so much so that it’s a little dishonest to try to extrapolate long-term estimates from these numbers. So it makes sense to focus on recent growth rates instead. It’s pleasing to see that Card Factory’s earnings per share have risen from £0.13 to £0.14 over twelve months. That’s an increase of 11%; respectable growth in the bigger picture.
One way to check a company’s growth is to look at how revenue and earnings before interest and tax (EBIT) are changing. We note that Card Factory achieved similar EBIT margins to last year, but revenue grew a solid 10% to £511m. This is encouraging news for the company!
In the graph below you can see how the company has grown profit and revenue over time. Click on the graph to see the exact numbers.
Although we live in the present, there is little doubt that the future is of paramount importance when making investment decisions. Check out this interactive chart showing future EPS estimates for Card Factory.
Are the Card Factory insiders on the same page as all shareholders?
Insider interest in a company always generates a certain level of interest, and many investors look for companies where insiders put their words into action. Insider purchases often indicate that those closest to the company have confidence that the share price will perform well. However, small purchases are not always a sign of conviction, and insiders are not always right.
We note that Card Factory insiders have spent GBP 127,000 on shares in the last year; in contrast, we have not observed any selling. This is a good sign for the company as it paints an optimistic picture for the future. We also note that it was CEO and Managing Director Darcy Willson-Rymer who made the largest single acquisition, paying GBP 90,000 for shares at a price of around GBP 0.97 each.
Should you add Card Factory to your watchlist?
One key encouraging feature of Card Factory is that the company is making increasing profits. While some companies struggle to grow their earnings per share, Card Factory seems to be exempt from this grim problem. The real kicker is that insiders have piled on their information, suggesting that those who understand the company best see some potential. What about the risks? Every company has them, and we have 1 warning sign for Card Factory You should know about this.
The good news is that Card Factory is not the only stock with insider buying. Here is a list of small cap and undervalued companies in the UK with insider buying in the last three months!
Please note that the insider transactions discussed in this article are reportable transactions in the respective jurisdiction.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
