With EPS growth and more, Good Times Restaurants (NASDAQ: GTIM) makes an interesting case
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. 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. A loss-making company has not yet proven itself with profits, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn’t sit well with you, you might be more interested in profitable and growing businesses, like Good Times Restaurants (NASDAQ: GTIM). While profit isn’t the only metric to consider when investing, it’s worth recognizing companies that can consistently produce it.
Check out our latest analysis for Good Times Restaurants
How fast are Good Times restaurants growing their earnings per share?
Strong earnings per share (EPS) results are an indicator of a company making strong earnings, which investors view favorably and therefore the stock price tends to reflect excellent EPS performance. So, for many aspiring investors, improving EPS is seen as a good sign. Praise must be given for seeing that Good Times Restaurants increased its EPS from US$0.28 to US$1.05, in a short year. When you see profits growing this quickly, it often means good things for the business. Could this be a sign that the company has reached an inflection point?
It is often useful 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. On the revenue side, Good Times Restaurants has done well over the past year, growing revenue by 23% to $134 million, but EBIT margin numbers have been less bright, registering a decline in course of the last 12 months. If EBIT margins manage to stay balanced and this revenue growth continues, we should see better days ahead.
The chart below shows how the company’s top and bottom line has grown over time. To see the actual numbers, click on the chart.
Good Times Restaurants isn’t a big company, given its $40 million market capitalization. It is therefore very important to check the strength of its balance sheet.
Are Good Times Restaurants 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
A good takeaway for shareholders is that company insiders at Good Times Restaurants collectively spent US$12,000 to acquire shares of the company. If this is not much, there is also an absence of balances. It should also be noted that it was independent director Jennifer Stetson who made the largest single purchase, worth $4.6,000, paying $4.24 per share.
Should You Add Good Times Restaurants to Your Watchlist?
Good Times Restaurants’ revenue has taken off quite impressively. Growth conscious people will be intrigued by the incredible growth movement of EPS. And indeed, it could be a sign that the company is at an inflection point. If so, it may be in your interest to monitor Good Times Restaurants. It should be noted, however, that we found 2 warning signs for Good Times Restaurants (1 cannot be ignored!) that you need to take into consideration.
Passionate growth investors like to see insider buying. Fortunately, Good Times Restaurants is not alone. You can see a free list of them here.
Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.
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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.