The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like African Media Entertainment (JSE:AME), which has not only revenues, but also profits. While this doesn’t necessarily speak to whether it’s undervalued, the profitability of the business is enough to warrant some appreciation – especially if its growing.
View our latest analysis for African Media Entertainment
African Media Entertainment’s Earnings Per Share Are Growing
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. Shareholders will be happy to know that African Media Entertainment’s EPS has grown 37% each year, compound, over three years. If the company can sustain that sort of growth, we’d expect shareholders to come away satisfied.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. African Media Entertainment shareholders can take confidence from the fact that EBIT margins are up from 16% to 18%, and revenue is growing. Both of which are great metrics to check off for potential growth.
In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.
African Media Entertainment isn’t a huge company, given its market capitalisation of R246m. That makes it extra important to check on its balance sheet strength.
Are African Media Entertainment Insiders Aligned With All Shareholders?
It’s a good habit to check into a company’s remuneration policies to ensure that the CEO and management team aren’t putting their own interests before that of the shareholder with excessive salary packages. Our analysis has discovered that the median total compensation for the CEOs of companies like African Media Entertainment with market caps under R3.7b is about R5.6m.
African Media Entertainment’s CEO took home a total compensation package worth R3.0m in the year leading up to March 2023. That is actually below the median for CEO’s of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it’s reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is African Media Entertainment Worth Keeping An Eye On?
You can’t deny that African Media Entertainment has grown its earnings per share at a very impressive rate. That’s attractive. With swiftly growing earnings, the best days may still be to come, and the modest CEO pay suggests the company is careful with cash. We think that based on its merits alone, this stock is worth watching into the future. Even so, be aware that African Media Entertainment is showing 3 warning signs in our investment analysis , and 1 of those is concerning…
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with 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.
