December 6, 2022

Motowndesserts

Automotive to Us

If You Like EPS Growth Then Check Out MotorCycle Holdings (ASX:MTO) Before It’s Too Late

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.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like MotorCycle Holdings (ASX:MTO). While profit is not necessarily a social good, it’s easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for MotorCycle Holdings

How Fast Is MotorCycle Holdings Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that MotorCycle Holdings has managed to grow EPS by 36% per year over three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.

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. While we note MotorCycle Holdings’s EBIT margins were flat over the last year, revenue grew by a solid 11% to AU$447m. That’s progress.

The chart below shows how the company’s bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history

earnings-and-revenue-history

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 MotorCycle Holdings’s future profits.

Are MotorCycle Holdings Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We do note that MotorCycle Holdings insiders netted -AU$15k worth of shares over the last year. But the silver lining to that cloud is that Peter Henley, the Independent Non-Executive Director, spent AU$24k buying shares at an average price of AU$3.09. And that’s a reason to be optimistic.

On top of the insider buying, we can also see that MotorCycle Holdings insiders own a large chunk of the company. In fact, they own 36% of the shares, making insiders a very influential shareholder group. I’m reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. With that sort of holding, insiders have about AU$67m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add MotorCycle Holdings To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about MotorCycle Holdings’s strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. So it’s fair to say I think this stock may well deserve a spot on your watchlist. We should say that we’ve discovered 2 warning signs for MotorCycle Holdings (1 can’t be ignored!) that you should be aware of before investing here.

As a growth investor I do like to see insider buying. But MotorCycle Holdings isn’t the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.