Here's Why We Think Zicom Group (ASX:ZGL) Is Well Worth Watching

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Zicom Group (ASX:ZGL). 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.

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Zicom Group's Improving Profits

Over the last three years, Zicom Group has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. Zicom Group's EPS has risen over the last 12 months, growing from S$0.031 to S$0.036. This amounts to a 17% gain; a figure that shareholders will be pleased to see.

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 Zicom Group shareholders is that EBIT margins have grown from 1.1% to 7.2% 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.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

Check out our latest analysis for Zicom Group

Zicom Group isn't a huge company, given its market capitalisation of AU$33m. That makes it extra important to check on its balance sheet strength.

Are Zicom 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, small purchases are not always indicative of conviction, and insiders don't always get it right.

The good news for Zicom Group shareholders is that no insiders reported selling shares in the last year. Add in the fact that Lak Sim Giok, the Executive Chairman of the company, paid S$55k for shares at around S$0.076 each. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Zicom Group.

Should You Add Zicom Group To Your Watchlist?

One important encouraging feature of Zicom Group is that it is growing profits. Not every business can grow its EPS, but Zicom Group certainly can. The icing on the cake is that an insider bought shares during the year; a point of interest for people who will want to keep a watchful eye on this stock. Before you take the next step you should know about the 1 warning sign for Zicom Group that we have uncovered.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Zicom Group, you'll probably love this curated collection of companies in AU that have an attractive valuation 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.