The recent results from three of Australia’s listed outdoor advertising companies suggest the good times are likely to continue in 2016 – much like they did in 2015.

Out-of-home advertisers offer companies the ability to display their ads on digital billboards and virtually anywhere else outdoors, such as the sides of buses, bus stops, railway stations, trams; stadiums; airports as well as the usual advertising signs on motorways. Not all is necessarily outdoors either – a number of advertisers also offer screens in cafes, gyms, shopping malls, universities and even offices.

I’m sure they’ll find more places to advertise on in future too.

And business is booming.

QMS Media Ltd (ASX: QMS), which operates both in Australia and New Zealand today reported a 50% increase in revenues of $44.4 million for the first half of the 2016 financial year, an underlying net profit after tax of $5.7 million, and earnings per share of 2.2 cents.

That was driven by a massive increase in both digital and static billboards – up from 13 to 33 and from 204 to 691 respectively. QMS says it is aiming for 48 digital billboards by the end of June 2016, and 7 sites already planned for the 2017 financial year – which will drive further sales growth.

The operating leverage on display is mouth watering. Let’s face it, once a billboard is in place, particularly a digital billboard, it doesn’t need much maintenance or ongoing expenditure, and additional revenue virtually falls through to the bottom line.

Gross margins of 50% and over and EBITDA margins of around 24% and growing, are surely going to attract more competitors to the sector over time.

APN Outdoor Group Ltd (ASX: APO) recently reported a 20% increase in revenues to $300.8 million, and a net profit after tax (NPATA) of $43.3 million – up 84% over the previous year, and EPS of 26 cents.

Like QMS, APN Outdoor is rolling out more screens and says demand from advertisers and agencies remains strong – resulting in the company accelerating the rollout of digital screens in 2016.

Ooh!Media Limited (ASX: OML) recently reported revenues of $279.8 million, earnings before interest, tax, depreciation and amortisation (EBITDA) of $57.7 million and net profit of $28.5 million for the 2015 financial year. While revenues were only up 7.3%, NPATA jumped by 56.8% compared to 2014. EBITDA margins jumped from 16.1% to 20.6%, and are likely to grow further – given QMS Media and APN Outdoor’s margins of around 24%.

QMS Media* APN Outdoor Ooh!Media
Revenues $44.4m $300.8m $279.8m
EBITDA $10.7m $73.3m $57.7m
EBITDA margin 24.1% 24.4% 20.6%
Earnings per share 2.2 cents 26 cents 19.0 cents
Share price $1.20 $6.05 $4.00
P/E ratio ~24x 23x 21x
Net (debt)/cash $13.3m ($57.5m) ($86.3m)

Source: Company reports, my calculations
*QMS Media is half year only

While the valuations may look expensive with all three companies sporting P/E ratios of above 20x earnings, investors need to consider the rapid growth in revenues and earnings, and as I mentioned earlier, the incremental revenues that drops down to the net profit line.

Risks

They are not without risks either. As the recent collapse of Dick Smith Holdings showed – a number of suppliers to the company were left high and dry. Advertisers can and do fail to pay their bills for many reasons. That’s where diversity of customers comes in, ensuring the failure of one customer or the loss of a key contract won’t bring the company down.

The other risk is taking on too much debt. Those digital monster screens aren’t cheap, but a downturn in the advertising market can leave those companies with too much debt hanging in the wind.

Foolish takeaway

There’s still plenty of growth available for all three companies, through bolt-on acquisitions as well as organic growth from existing advertising, growing margins, and additional screens or advertising real estate.

Trying to pick one of the above companies is tough – APN Outdoor is the largest with a $1 billion market cap, Ooh!Media with $600 million and QMS a virtual minnow with a market cap of $360 million, and there are other differences in their businesses as well. Investors might want to add all three to their watchlist.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.