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Compass Group showcases consistent earnings growth and strong company insider buying, making it a promising prospect for investors.

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The allure of discovering ‘the next big thing’ often tempts investors into backing ‘story stocks’ with little to no revenue or profit. This approach, predominantly driven by emotion rather than sound company fundamentals, is inherently risky. These investors gamble on loss-making companies hoping they will eventually reach financial sustainability, often overlooking the inherent risks.

Compass Group’s Consistent Earnings Growth

In contrast to ‘story stocks’, Compass Group offers not only revenues but also profits. Over the last three years, Compass Group has demonstrated impressive growth rates in its earnings per share (EPS).

Compass Group’s EPS experienced a significant leap from UK£0.63 to UK£0.81 in just one year. This equates to a growth of 29%, a result that should please shareholders.

Furthermore, Compass Group achieved a revenue growth of 22% to UK£31b while maintaining stable earnings before interest and taxation (EBIT) margins over the last year. This synergy of stable EBIT margins and substantial revenue growth serves as a positive signal for the sustainability of recent profit growth.

Insider Buying

The alignment of company insiders with all shareholders can provide reassurance for potential investors - although only 0.04% of the company’s value, demonstrates significant buy-in and might indicate conviction in the business strategy.

Given the belief that share price follows EPS, Compass Group’s strong EPS growth makes it a worthwhile candidate. The solid EPS growth rates and significant insider buying suggest that the company’s leadership has confidence in the business.