Investors are often guided by the idea of discovering ‘the next big thing’, even if that means buying ‘story stocks’ without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Malibu Boats (NASDAQ:MBUU). 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.
Check out the opportunities and risks within the US Leisure industry.
Malibu Boats’ Earnings Per Share Are Growing
The market is a voting machine in the short term, but a weighing machine in the long term, so you’d expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. Shareholders will be happy to know that Malibu Boats’ EPS has grown 34% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
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 Malibu Boats achieved similar EBIT margins to last year, revenue grew by a solid 26% to US$1.3b. That’s encouraging news for the company!
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.
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 Malibu Boats’ future EPS 100% free.
Are Malibu Boats Insiders Aligned With All Shareholders?
It’s said that there’s no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
We haven’t seen any insiders selling Malibu Boats shares, in the last year. With that in mind, it’s heartening that Peter Murphy, the Independent Director of the company, paid US$38k for shares at around US$54.00 each. It seems that at least one insider is prepared to show the market there is potential within Malibu Boats.
On top of the insider buying, it’s good to see that Malibu Boats insiders have a valuable investment in the business. As a matter of fact, their holding is valued at US$25m. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 2.1% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Does Malibu Boats Deserve A Spot On Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Malibu Boats’ strong EPS growth. On top of that, insiders own a significant piece of the pie when it comes to the company’s stock, and one has been buying more. So it’s fair to say that this stock may well deserve a spot on your watchlist. While we’ve looked at the quality of the earnings, we haven’t yet done any work to value the stock. So if you like to buy cheap, you may want to check if Malibu Boats is trading on a high P/E or a low P/E, relative to its industry.
Keen growth investors love to see insider buying. Thankfully, Malibu Boats 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.
Valuation is complex, but we’re helping make it simple.
Find out whether Malibu Boats is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.