Does Fonterra Co-operative Group (NZSE:FCG) Deserve A Spot On Your Watchlist?

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. 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.

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

Check out our latest analysis for Fonterra Co-operative Group

Fonterra Co-operative Group's Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Fonterra Co-operative Group has managed to grow EPS by 23% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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 Fonterra Co-operative Group is growing revenues, and EBIT margins improved by 3.0 percentage points to 6.8%, over the last year. Both of which are great metrics to check off for potential growth.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Fonterra Co-operative Group's balance sheet strength, before getting too excited.

Are Fonterra Co-operative Group Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But the real excitement comes from the NZ$240k that Director Andrew Macfarlane spent buying shares (at an average price of about NZ$3.00). It seems at least one insider has seen potential in the company's future - and they're willing to put money on the line.

Does Fonterra Co-operative Group Deserve A Spot On Your Watchlist?

For growth investors, Fonterra Co-operative Group's raw rate of earnings growth is a beacon in the night. The growth rate should be enticing enough to consider researching the company, and the insider buying is a great added bonus. To put it succinctly; Fonterra Co-operative Group is a strong candidate for your watchlist. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Fonterra Co-operative Group that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Fonterra Co-operative Group, you'll probably love this free list of growing companies that insiders are buying.

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.

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