We Ran A Stock Scan For Earnings Growth And TruFin (LON:TRU) Passed With Ease

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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 TruFin (LON:TRU). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide TruFin with the means to add long-term value to shareholders.

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Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It’s an outstanding feat for TruFin to have grown EPS from UK£0.024 to UK£0.074 in just one year. While it’s difficult to sustain growth at that level, it bodes well for the company’s outlook for the future. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. Our analysis has highlighted that TruFin’s revenue from operations did not account for all of their revenue last year, so our analysis of its margins might not accurately reflect the underlying business. TruFin shareholders can take confidence from the fact that EBIT margins are up from 40% to 64%, and revenue is growing. Both of which are great metrics to check off for potential growth.

You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

View our latest analysis for TruFin

Since TruFin is no giant, with a market capitalisation of UK£109m, you should definitely check its cash and debt before getting too excited about its prospects.

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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.

We haven’t seen any insiders selling TruFin shares, in the last year. So it’s definitely nice that company insider Paul Dentskevich bought UK£34k worth of shares at an average price of around UK£0.82. It seems that at least one insider is prepared to show the market there is potential within TruFin.

TruFin’s earnings per share have been soaring, with growth rates sky high. Growth-minded people will be intrigued by the incredible movement in EPS growth. And in fact, it could well signal a fundamental shift in the business economics. If that’s the case, you may regret neglecting to put TruFin 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 TruFin is trading on a high P/E or a low P/E, relative to its industry.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of TruFin, you’ll probably love this curated collection of companies in GB that have an attractive valuation alongside insider buying in the last three months.

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.