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Investing in growth companies with high insider ownership can offer a unique advantage. High insider ownership often signals strong internal confidence and alignment with shareholder interests, as those within the company have a vested interest in its success. Here’s a look at two such companies on the ASX: Develop Global (ASX:DVP) and Nanosonics (ASX:NAN).
Develop Global Limited (ASX:DVP)
Develop Global Limited is a mineral exploration and development company with a market cap of AU$572.88 million. The company focuses on mineral resource properties in Australia and is emerging as a notable player in the sector.
Operations
The company’s operations include revenue from mining services, totaling AU$109.75 million. Develop Global is well-positioned for substantial growth, with forecasts indicating a 57.5% annual increase in revenue, significantly outpacing the Australian market's average.
Insider Ownership
Insider ownership stands at 22.6%, reflecting a high level of confidence from those within the company. This strong internal backing could be a positive indicator for potential investors.
Growth Outlook
Develop Global is projected to achieve profitability within three years, with earnings expected to grow at an impressive rate of 122.66% per year. This above-average market growth in earnings showcases the company’s potential to deliver strong returns.
Challenges
Despite its promising outlook, Develop Global faces some challenges. The company has less than one year of cash runway, raising concerns about its ability to sustain operations without additional financing. Additionally, the forecasted return on equity (ROE) is relatively low at 13.5%, which may limit the company's attractiveness to some investors.
Recent Developments
Develop Global recently participated in the Bell Potter Emerging Leaders Conference in May 2024, where it showcased its growth strategy and future plans to investors.
Nanosonics Limited (ASX:NAN)
Nanosonics Limited, with a market cap of AU$975.65 million, operates as a global leader in infection prevention technology. The company primarily generates revenue from its Healthcare Equipment segment, which totaled AU$170.01 million.
Insider Ownership
Insider ownership in Nanosonics is relatively high at 15.1%, indicating a solid level of confidence from those within the company.
Growth Outlook
Nanosonics is forecasted to achieve annual earnings growth of 22.3% and revenue growth of 8.7%, both exceeding the Australian market averages. Despite this strong growth potential, Nanosonics is currently trading at a 37% discount to its estimated fair value, which could present a buying opportunity for investors.
Challenges
Recent earnings results revealed a decline in net income from AU$19.88 million to AU$12.97 million year-over-year. Profit margins also fell, decreasing from 12% to 7.6%. Additionally, there has been significant insider selling over the past three months, which may raise concerns among potential investors. However, more shares were bought than sold during this period, suggesting that some insiders still see value in the company.
