Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Trip.com Group (NASDAQ:TCOM). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Trip.com Group's Improving Profits
Trip.com Group has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. Impressively, Trip.com Group's EPS catapulted from CN¥15.19 to CN¥26.11, over the last year. It's not often a company can achieve year-on-year growth of 72%.
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. It's noted that Trip.com Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Trip.com Group maintained stable EBIT margins over the last year, all while growing revenue 20% to CN¥53b. That's encouraging news for the company!
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.
See our latest analysis for Trip.com Group
Fortunately, we've got access to analyst forecasts of Trip.com Group's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Trip.com Group Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$38b company like Trip.com Group. But we do take comfort from the fact that they are investors in the company. We note that their impressive stake in the company is worth CN¥847m. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.
Is Trip.com Group Worth Keeping An Eye On?
Trip.com Group's earnings per share growth have been climbing higher at an appreciable rate. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, Trip.com Group is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Now, you could try to make up your mind on Trip.com Group by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by significant insider holdings.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.