Here’s why Brickworks (ASX: BKW) caught the attention of investors

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies with no revenue, no profit and a history of failure can successfully find investors. But the reality is that when a company loses money every year, for long enough, its investors will usually take their share of those losses. Loss-making companies are always in a race against time to achieve financial viability, so investors in these companies may take on more risk than they should.

Contrary to all this, many investors prefer to focus on companies like brickyard (ASX: BKW), which not only generates revenue, but also profits. While that doesn’t necessarily mean it’s undervalued, the company’s profitability is enough to warrant some appreciation, especially if it’s growing.

Our analysis indicates that BKW is potentially undervalued!

How fast is Brickworks growing earnings per share?

In business, profits are a key measure of success; and stock prices tend to reflect earnings per share (EPS) performance. This is why EPS growth is viewed so favorably. It is impressive that Brickworks’ EPS has grown from AU$1.61 to AU$5.73 in just one year. When you see profits growing this quickly, it often means good things for the business. This could indicate that the business is reaching an inflection point.

It’s often helpful to look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another idea of ​​the quality of the company’s growth. Brickworks shareholders can take comfort in the fact that EBIT margins have increased from 2.3% to 4.5% and revenues are increasing. These are two great indicators to check for potential growth.

In the table below, you can see how the company has increased its profits and revenue over time. Click on the table to see the exact numbers.

ASX: BKW Earnings and Revenue History November 3, 2022

The trick, as an investor, is to find companies that go to perform well in the future, not just in the past. Although crystal balls do not exist, you can check our visualization of consensus analyst forecasts for Brickworks’ future EPS 100% free.

Are Brickworks Insiders Aligned with All Shareholders?

It is said that there is no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks might ignite the market. This view is based on the possibility that stock purchases signal an uptrend on behalf of the buyer. However, insiders are sometimes wrong and we don’t know the exact logic behind their acquisitions.

Even though some insiders have sold their holdings, their actions speak louder than words with A$357,000 more invested than sold by those who know their business best. An optimistic sign for those who have Brickworks on their watch list. We also note that it was Managing Director and Executive Director Lindsay Partridge who made the largest single acquisition, paying A$715,000 for shares at around A$21.57 apiece.

In addition to insider buys, it’s good to see that Brickworks insiders have a valuable investment in the company. Given that the insiders own a large shareholding, currently valued at A$123 million, they have plenty of motivation to drive the company to success. That’s certainly enough to let shareholders know that management will be very focused on long-term growth.

Is the brickyard worth watching?

Brickworks’ earnings per share growth has increased at an appreciable pace. Additionally, insiders have a large stake in the company and have purchased more shares. These factors seem to indicate the potential of the company and that it has reached an inflection point. We suggest Brickworks is at the top of your watch list. However, you should inquire about the 3 warning signs we spotted with Brickworks (including 2 that make us uncomfortable).

Passionate growth investors like to see insider buying. Fortunately, Brickworks is not alone. You can see a a free list of them here.

Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.

Valuation is complex, but we help make it simple.

Find out if brickyard is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Robert D. Coleman