It’s common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.
If this kind of company isn’t your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Modern Dental Group (HKG:3600). While profit isn’t the sole metric that should be considered when investing, it’s worth recognising businesses that can consistently produce it.
Check out our latest analysis for Modern Dental Group
Modern Dental Group’s Improving Profits
In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So a growing EPS generally brings attention to a company in the eyes of prospective investors. Commendations have to be given in seeing that Modern Dental Group grew its EPS from HK$0.11 to HK$0.38, in one short year. While it’s difficult to sustain growth at that level, it bodes well for the company’s outlook for the future. Could this be a sign that the business has reached an inflection point?
One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Modern Dental Group shareholders can take confidence from the fact that EBIT margins are up from 12% to 17%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.
The chart below shows how the company’s bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
While we live in the present moment, there’s little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Modern Dental Group?
Are Modern Dental Group 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
First things first, there weren’t any reports of insiders selling shares in Modern Dental Group in the last 12 months. Even better, though, is that the Independent Non-Executive Director, Ka Yau, bought a whopping HK$2.0m worth of shares, paying about HK$6.62 per share, on average. Purchases like this can offer an insight into the faith of the company’s management – and it seems to be all positive.
On top of the insider buying, it’s good to see that Modern Dental Group insiders have a valuable investment in the business. Holding HK$574m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. Amounting to 17% of the outstanding shares, indicating that insiders are also significantly impacted by the decisions they make on the behalf of the business.
Should You Add Modern Dental Group To Your Watchlist?
Modern Dental Group’s earnings per share have been soaring, with growth rates sky high. The icing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. These factors seem to indicate the company’s potential and that it has reached an inflection point. We’d suggest Modern Dental Group belongs near the top of your watchlist. However, before you get too excited we’ve discovered 2 warning signs for Modern Dental Group that you should be aware of.
Keen growth investors love to see insider buying. Thankfully, Modern Dental Group 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.
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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.