Here’s Why We Think AFT Pharmaceuticals (NZSE:AFT) Is Well Worth Watching

It’s common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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.

If this kind of company isn’t your style, you like companies that generate revenue, and even earn profits, then you may well be interested in AFT Pharmaceuticals (NZSE:AFT). 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.

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If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. We can see that in the last three years AFT Pharmaceuticals grew its EPS by 7.7% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

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. While we note AFT Pharmaceuticals achieved similar EBIT margins to last year, revenue grew by a solid 19% to NZ$236m. That’s encouraging news for the company!

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.

See our latest analysis for AFT Pharmaceuticals

Fortunately, we’ve got access to analyst forecasts of AFT Pharmaceuticals’ future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.

It’s good to see AFT Pharmaceuticals insiders walking the walk, by spending NZ$900k on shares in just twelve months. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what’s to come. We also note that it was the Co-Founder, Hartley Atkinson, who made the biggest single acquisition, paying NZ$566k for shares at about NZ$2.83 each.

These recent buys aren’t the only encouraging sign for shareholders, as a look at the shareholder registry for AFT Pharmaceuticals will reveal that insiders own a significant piece of the pie. In fact, they own 69% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. In terms of absolute value, insiders have NZ$247m invested in the business, at the current share price. So there’s plenty there to keep them focused!

One important encouraging feature of AFT Pharmaceuticals is that it is growing profits. On top of that, we’ve seen insiders buying shares even though they already own plenty. That should do plenty in prompting budding investors to undertake a bit more research – or even adding the company to their watchlists. Now, you could try to make up your mind on AFT Pharmaceuticals by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

Keen growth investors love to see insider activity. Thankfully, AFT Pharmaceuticals isn’t the only one. You can see a a curated list of New Zealander 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.