With EPS growth and more, Austin Engineering (ASX:ANG) is an interesting case

For beginners, it can be a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it doesn't currently have a track record of revenue and profit. Unfortunately, the likelihood of these high-risk investments ever paying off is often slim, and many investors pay a price to learn their lesson. Loss-making companies can act like a sponge on capital – so investors should be careful not to throw good money after bad.

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 Austin technology (ASX:ANG). While this does not mean that the company is the best investment opportunity, profitability is a key component of business success.

Check out our latest analysis for Austin Engineering

Austin Engineering’s earnings per share increase

The market is a voting machine in the short term, but a weighing machine in the long term, so one would expect the share price to ultimately follow earnings per share (EPS) results. Therefore, it makes sense for experienced investors to pay close attention to the company's earnings per share when analyzing investments. Impressively, Austin Engineering has grown its earnings per share at a rate of 24% per year over the past three years. As a general rule, we would say that a company that can keep up The Kind of growth, shareholders will be beaming.

It's often useful to look at earnings before interest and tax (EBIT) margins and revenue growth to get another sense of the quality of the company's growth. While we note that Austin Engineering delivered similar EBIT margins to last year, revenue grew a solid 21% to AU$288m. That's progress.

The following chart shows how the company's earnings and revenue have changed over time. Click on the image to get more detailed information.

Austin Engineering is not a huge company considering its market capitalization of AU$352 million, so it is particularly important to check the strength of its balance sheet.

Are Austin Engineering insiders on the same page as all shareholders?

Investors are always looking for a vote of confidence in the companies they own, and insider buying is one of the most important indicators of optimism in the market. This view is based on the possibility that stock purchases signal optimism on the part of the buyer. Of course, we can never be sure what insiders think, we can only judge their actions.

We haven't seen any insiders selling Austin Engineering shares in the last year, so it's certainly nice to see CEO, MD & Director David Patrick Singleton buying AU$50,000 worth of shares at an average price of around AU$0.27. Purchases like this can help investors understand the views of the management team; in this case, they see potential in Austin Engineering.

The story continues

Does Austin Engineering deserve a spot on your watchlist?

If you believe that share price follows earnings per share, you should definitely take a closer look at Austin Engineering's strong EPS growth. EPS growth is not the only striking feature. Company insiders increasing their stakes is also another notable vote of confidence in the company. In essence, it's not a waste of time to take a closer look at Austin Engineering. Of course, just because Austin Engineering is growing doesn't mean it's undervalued. If you're wondering about its valuation, check out this indicator of its price-to-earnings ratio compared to its industry.

The good news is that Austin Engineering is not the only stock with insider buying. Here is a list of small-cap and undervalued companies in Australia that have seen insider buying in the last three months!

Please note that the insider transactions discussed in this article are reportable transactions in the respective jurisdiction.

Do you have feedback on this article? Are you concerned about the content? Contact us directly from us. Alternatively, send an email to editorial-team (at) simplywallst.com.

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.