Do FOS Capital's (ASX:FOS) Earnings Warrant Your Attention?

Simply Wall St · 03/11 23:38

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

In contrast to all that, many investors prefer to focus on companies like FOS Capital (ASX:FOS), which has not only revenues, but also profits. While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for FOS Capital

FOS Capital's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. FOS Capital managed to grow EPS by 16% per year, over three years. That's a pretty good rate, if the company can sustain it.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The music to the ears of FOS Capital shareholders is that EBIT margins have grown from 4.2% to 6.8% in the last 12 months and revenues are on an upwards trend as well. 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. For finer detail, click on the image.

earnings-and-revenue-history
ASX:FOS Earnings and Revenue History March 11th 2025

FOS Capital isn't a huge company, given its market capitalisation of AU$16m. That makes it extra important to check on its balance sheet strength.

Are FOS Capital Insiders Aligned With All Shareholders?

As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalisations under AU$318m, like FOS Capital, the median CEO pay is around AU$457k.

FOS Capital offered total compensation worth AU$240k to its CEO in the year to June 2024. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is FOS Capital Worth Keeping An Eye On?

As previously touched on, FOS Capital is a growing business, which is encouraging. Not only that, but the CEO is paid quite reasonably, which should prompt investors to feel more trusting of the board of directors. All things considered, FOS Capital is definitely worth taking a deeper dive into. Still, you should learn about the 2 warning signs we've spotted with FOS Capital (including 1 which doesn't sit too well with us).

Although FOS Capital certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Australian companies that not only boast of strong growth but have strong insider backing.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.