Should You Be Adding Advanced Braking Technology (ASX:ABV) To Your Watchlist Today?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Advanced Braking Technology (ASX:ABV). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Advanced Braking Technology with the means to add long-term value to shareholders.

Check out our latest analysis for Advanced Braking Technology

Advanced Braking Technology's Improving Profits

In the last three years Advanced Braking Technology's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Impressively, Advanced Braking Technology's EPS catapulted from AU$0.0017 to AU$0.0039, over the last year. Year on year growth of 128% is certainly a sight to behold. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The good news is that Advanced Braking Technology is growing revenues, and EBIT margins improved by 5.3 percentage points to 11%, over the last year. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

Advanced Braking Technology isn't a huge company, given its market capitalisation of AU$21m. That makes it extra important to check on its balance sheet strength.

Are Advanced Braking Technology Insiders Aligned With All Shareholders?

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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's worth noting that there was some insider selling of Advanced Braking Technology shares last year, worth AU$229k. But this is outweighed by the trades from company insider Keith Knowles who spent AU$320k buying shares, at an average price of around AU$0.044. Overall, that is something good to take away.

On top of the insider buying, we can also see that Advanced Braking Technology insiders own a large chunk of the company. To be exact, company insiders hold 51% of the company, so their decisions have a significant impact on their investments. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Valued at only AU$21m Advanced Braking Technology is really small for a listed company. So despite a large proportional holding, insiders only have AU$11m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Does Advanced Braking Technology Deserve A Spot On Your Watchlist?

Advanced Braking Technology's earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Advanced Braking Technology deserves timely attention. You should always think about risks though. Case in point, we've spotted 2 warning signs for Advanced Braking Technology you should be aware of, and 1 of them can't be ignored.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Advanced Braking Technology, you'll probably love this curated collection of companies in AU that have witnessed growth alongside insider buying in the last three months.

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.