It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Athabasca Oil (TSE:ATH). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Athabasca Oil with the means to add long-term value to shareholders.
Athabasca Oil's Improving Profits
In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So for many budding investors, improving EPS is considered a good sign. It's an outstanding feat for Athabasca Oil to have grown EPS from CA$0.031 to CA$0.80 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
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 Athabasca Oil shareholders is that EBIT margins have grown from 6.7% to 15% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Athabasca Oil's balance sheet strength, before getting too excited.
Are Athabasca Oil Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Even though some insiders sold down their holdings, their actions speak louder than words with CA$364k more invested than sold by people who know they company best. This overall confidence in the company at current the valuation signals their optimism. It is also worth noting that it was Independent Director John Festival who made the biggest single purchase, worth CA$472k, paying CA$1.18 per share.
The good news, alongside the insider buying, for Athabasca Oil bulls is that insiders (collectively) have a meaningful investment in the stock. As a matter of fact, their holding is valued at CA$20m. This considerable investment should help drive long-term value in the business. Despite being just 1.2% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Does Athabasca Oil Deserve A Spot On Your Watchlist?
Athabasca Oil's earnings have taken off in quite an impressive fashion. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Athabasca Oil belongs near the top of your watchlist. You should always think about risks though. Case in point, we've spotted 2 warning signs for Athabasca Oil you should be aware of, and 1 of them is potentially serious.
Keen growth investors love to see insider buying. Thankfully, Athabasca Oil isn't the only one. You can see a a free list of them here.
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.
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