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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In contrast to all that, I prefer to spend time on companies like Imperial Equities (CVE:IEI), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Fast Is Imperial Equities Growing Its Earnings Per Share?
In the last three years Imperial Equities's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a firecracker arcing through the night sky, Imperial Equities's EPS shot from CA$0.44 to CA$0.86, over the last year. Year on year growth of 97% is certainly a sight to behold.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Imperial Equities maintained stable EBIT margins over the last year, all while growing revenue 13% to CA$19m. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
Imperial Equities isn't a huge company, given its market capitalization of CA$44m. That makes it extra important to check on its balance sheet strength.
Are Imperial Equities Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
We haven't seen any insiders selling Imperial Equities shares, in the last year. With that in mind, it's heartening that Sine Chadi, the Chairman of the company, paid CA$15k for shares at around CA$4.36 each.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Imperial Equities insiders own more than a third of the company. Actually, with 37% of the company to their names, insiders are profoundly invested in the business. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Valued at only CA$44m Imperial Equities is really small for a listed company. That means insiders only have CA$16m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.
Does Imperial Equities Deserve A Spot On Your Watchlist?
Imperial Equities's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Imperial Equities deserves timely attention. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Imperial Equities (1 is significant) you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Imperial Equities, you'll probably love this free list of growing companies that insiders are buying.
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.