Here's Why Master Drilling Group (JSE:MDI) Has Caught The Eye Of Investors
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. 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 Master Drilling Group (JSE:MDI). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Master Drilling Group with the means to add long-term value to shareholders.
How Quickly Is Master Drilling Group Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, Master Drilling Group has grown EPS by 13% per year. That's a good rate of growth, if it can be sustained.
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. While Master Drilling Group did well to grow revenue over the last year, EBIT margins were dampened at the same time. If EBIT margins are able to stay balanced and this revenue growth continues, then we should see brighter days ahead.
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.
View our latest analysis for Master Drilling Group
Since Master Drilling Group is no giant, with a market capitalisation of R2.5b, you should definitely check its cash and debt before getting too excited about its prospects.
Are Master Drilling Group Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.
We did see some selling in the last twelve months, but that's insignificant compared to the whopping US$26m that the Alternate Director, Gareth Sheppard spent acquiring shares. We should note the average purchase price was around US$15.22. Big purchases like that are well worth noting, especially for those who like to follow the insider money.
On top of the insider buying, it's good to see that Master Drilling Group insiders have a valuable investment in the business. As a matter of fact, their holding is valued at US$798m. This considerable investment should help drive long-term value in the business. Those holdings account for over 32% of the company; visible skin in the game.
Should You Add Master Drilling Group To Your Watchlist?
One important encouraging feature of Master Drilling Group is that it is growing profits. Better yet, insiders are significant shareholders, and have been buying more shares. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. What about risks? Every company has them, and we've spotted 2 warning signs for Master Drilling Group (of which 1 is a bit concerning!) you should know about.
Keen growth investors love to see insider activity. Thankfully, Master Drilling Group isn't the only one. You can see a a curated list of South African companies which have exhibited consistent growth accompanied by high insider ownership.
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.