Is it time to put Pengana Capital Group (ASX: PCG) on your watchlist?

For newbies, it might seem like a good idea (and an exciting prospect) to buy a business that tells investors a good story, even if it lacks a history of revenue and profit altogether. But as Peter Lynch put it in One Up on Wall Street, ‘Long shots hardly ever pay off.’

Contrary to all this, I prefer to spend time on companies like Pengana Capital Group (ASX: PCG), which not only has revenue, but also profits. While profit isn’t necessarily social good, it’s easy to admire a business that can consistently produce it. Loss-making businesses always race against time to achieve financial viability, but time is often the friend of the profitable business, especially if it is growing.

Discover our latest analysis for Pengana Capital Group

How fast is Pengana Capital Group growing?

The market is a short-term voting machine, but a long-term weighing machine, so the stock price eventually follows earnings per share (EPS). So it’s no surprise that I like to invest in companies with growing EPS. Over the past three years, Pengana Capital Group has increased its EPS by 5.2% per year. While this type of growth rate is not surprising, it does show that the business is growing.

A close look at revenue growth and profit before interest and tax (EBIT) margins can help shed light on the sustainability of recent earnings growth. I note that the revenues of Pengana Capital Group operations was lower than its turnover for the last twelve months, which could skew my analysis of its margins. Pengana Capital Group shareholders can be confident that EBIT margins have increased from 14% to 21% and revenues are increasing. Checking those two boxes is a good sign of growth in my book.

The graph below shows how the company’s bottom line has progressed over time. Click on the graph to see the exact numbers.

income-and-income-history

Pengana Capital Group is not a large company considering its market capitalization of A $ 189 million. It is therefore very important to check the strength of its balance sheet.

Are Pengana Capital Group Insiders Aligned with All Shareholders?

Like that fresh smell in the air when the rains come, insider buying fills me with optimistic anticipation. Because often buying stocks is a sign that the buyer sees them as undervalued. Small purchases aren’t always indicative of conviction, however, and insiders don’t always make the right choices.

We note that insiders of Pengana Capital Group have spent AU $ 243,000 on shares in the past year; however, we did not see any sales. It puts the company in a good light because it makes me think its leaders feel confident. We also note that it was the independent non-executive director, Kevin Eley, who made the largest acquisition, paying AU $ 90,000 for shares at around AU $ 1.81 each.

The good news, along with insider buying, for bulls in Pengana Capital Group is that insiders (collectively) have a significant investment in the stock. To be precise, they have A $ 59 million worth of stock. This shows strong buy-in and may indicate a belief in business strategy. These holdings represent more than 31% of the company; skin visible in the game.

Does Pengana Capital Group deserve a spot on your watchlist?

As I mentioned before, Pengana Capital Group is a growing company, that’s what I like to see. Better yet, insiders are large shareholders and have bought more shares. This makes the company a prime candidate for my watchlist – and arguably a research priority. However, you should always think about the risks. Concrete example, we have spotted 3 warning signs for Pengana Capital Group you must be aware.

As a growth investor, I like to see insider buying. But Pengana Capital Group is not the only one. You can see a free list here.

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

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

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