Here’s why we think Finexia Financial Group (ASX:FNX) is worth watching

It is common for many investors, especially those who are inexperienced, to buy shares in companies that have a good history, even if those companies are loss-making. Unfortunately, these high-risk investments are often unlikely to ever return, and many investors pay a price to learn their lesson. Although a well-funded business may suffer losses for years, it will eventually have to turn a profit or investors will move on and the business will wither away.

Contrary to all this, many investors prefer to focus on companies like Finexia Financial Group (ASX:FNX), which not only generates revenue, but also profits. This does not mean that the company presents the best investment opportunity, but profitability is a key element of business success.

Check out our latest analysis for Finexia Financial Group

How fast is Finexia Financial Group growing earnings per share?

Over the past three years, earnings per share of Finexia Financial Group have taken off; so much so that it’s a bit dishonest to use these numbers to try to derive long-term estimates. It would therefore be better to isolate the growth rate over the last year for our analysis. Exceptionally, Finexia Financial Group’s EPS fell from AU$0.0085 to AU$0.02 over the past year. 139% annual growth is certainly a sight to behold. The best scenario? That the company has reached a real inflection point.

One way to check a company’s growth is to look at the evolution of its revenues and its earnings before interest and taxes (EBIT) margins. Not all Finexia Financial Group revenue this year is revenue operations, so keep in mind that the revenue and margin figures used in this article may not be the best representation of the underlying business. Finexia Financial Group has maintained stable EBIT margins over the past year, while growing revenue by 83% to A$8.3 million. It is progress.

You can check the company’s revenue and profit growth trend in the table below. To see the actual numbers, click on the chart.

ASX: FNX Earnings and Earnings History August 30, 2022

Since Finexia Financial Group is not a giant, with a market capitalization of A$8.1 million, you should definitely check its cash and debt. before getting too excited about his prospects.

Are Finexia Financial Group insiders aligned with all shareholders?

Many consider high insider shareholding to be a strong sign of alignment between a company’s executives and ordinary shareholders. So, as you can imagine, the fact that Finexia Financial Group insiders hold a significant number of shares is certainly attractive. In fact, with 36% of the company to their name, insiders are deeply invested in the company. Those reassured by strong insider ownership like this should be happy, as it implies that those running the company are genuinely motivated to create shareholder value. Valued at just A$8.1 million, Finexia Financial Group is really small for a publicly listed company. That means insiders only have A$2.9 million worth of shares, despite the large proportional stake. It may not be a huge sum, but it should be enough to motivate insiders!

It means a lot to see insiders invested in the company, but shareholders may wonder whether compensation policies are in their best interests. Well, based on CEO compensation, you’d say they indeed are. Our analysis found that the median total compensation for CEOs of companies like Finexia Financial Group with a market capitalization below AU$289 million is around AU$408,000.

The CEO of Finexia Financial Group earned total compensation worth A$218,000 in the year to June 2021. That seems pretty reasonable, especially considering he’s below the company median of similar size. CEO pay levels aren’t the most important metric for investors, but when the salary is modest, it promotes better alignment between the CEO and ordinary shareholders. It can also be a sign of a culture of integrity, broadly defined.

Should you add Finexia Financial Group to your watchlist?

The profits of Finexia Financial Group took off quite impressively. The sweetener is that the insiders have a mountain of stock and the CEO compensation is quite reasonable. The drastic profit growth indicates that the company is getting better and better. Hopefully this trend will continue in the future. Big growth can make big winners, so the writing on the wall tells us that Finexia Financial Group deserves careful consideration. However, you should inquire about the 4 warning signs we spotted with Finexia Financial Group (including 3 that are potentially serious).

Although Finexia Financial Group certainly looks good, it could attract more investors if insiders buy shares. If you like seeing insiders buy, then this free list of growing companies that insiders are buying might be exactly what you are looking for.

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

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.

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