Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In contrast to all that, I prefer to spend time on companies like Flow Traders (AMS:FLOW), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
See our latest analysis for Flow Traders
How Fast Is Flow Traders Growing Its Earnings Per Share?
In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. You can imagine, then, that it almost knocked my socks off when I realized that Flow Traders grew its EPS from €1.54 to €8.89, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. 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. I note that Flow Traders's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. The good news is that Flow Traders is growing revenues, and EBIT margins improved by 17.9 percentage points to 57%, over the last year. That's great to see, on both counts.
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.
Fortunately, we've got access to analyst forecasts of Flow Traders's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Flow Traders Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.
First things first; I didn't see insiders sell Flow Traders shares in the last year. But the really good news is that Chief Trading Officer & Member of the Management Board Folkert Joling spent €544k buying stock stock, at an average price of around €27.22. Big buys like that give me a sense of opportunity; actions speak louder than words.
On top of the insider buying, it's good to see that Flow Traders insiders have a valuable investment in the business. Given insiders own a small fortune of shares, currently valued at €45m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Dennis Matthijs Dijkstra, is paid less than the median for similar sized companies. For companies with market capitalizations between €825m and €2.6b, like Flow Traders, the median CEO pay is around €1.5m.
The Flow Traders CEO received total compensation of just €695k in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. I'd also argue reasonable pay levels attest to good decision making more generally.
Is Flow Traders Worth Keeping An Eye On?
Flow Traders's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Flow Traders deserves timely attention. It is worth noting though that we have found 2 warning signs for Flow Traders (1 makes us a bit uncomfortable!) that you need to take into consideration.
As a growth investor I do like to see insider buying. But Flow Traders 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. 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.
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Here's Why I Think Flow Traders (AMS:FLOW) Might Deserve Your Attention Today - Simply Wall St
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