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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
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 NetLink NBN Trust (SGX:CJLU). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for NetLink NBN Trust
NetLink NBN Trust's Earnings Per Share Are Growing
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. Over the last three years, NetLink NBN Trust has grown EPS by 11% per year. That's a good rate of growth, if it can be sustained.
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 NetLink NBN Trust achieved similar EBIT margins to last year, revenue grew by a solid 5.0% to S$415m. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
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 NetLink NBN Trust's future EPS 100% free.
Are NetLink NBN Trust 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
With strong conviction, NetLink NBN Trust insiders have stood united by refusing to sell shares over the last year. But more importantly, CEO & Executive Non-Independent Director of Netlink NBN Management Pte. Ltd. Yew Tong spent S$168k acquiring shares, doing so at an average price of S$0.84. Purchases like this clue us in to the to the faith management has in the business' future.