Yahoo Finance Does Northern Star Resources (ASX:NST) Deserve A Spot On Your Watchlist?
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
So if you're like me, you might be more interested in profitable, growing companies, like Northern Star Resources (ASX:NST). 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Check out our latest analysis for Northern Star Resources
Northern Star Resources's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. Over the last three years, Northern Star Resources has grown EPS by 12% per year. That's a pretty good rate, if the company can sustain it.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. The good news is that Northern Star Resources is growing revenues, and EBIT margins improved by 7.0 percentage points to 24%, over the last year. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Northern Star Resources.
Are Northern Star Resources Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We note that Northern Star Resources insiders spent AU$132k on stock, over the last year; in contrast, we didn't see any selling. That puts the company in a nice light, as it makes me think its leaders are feeling confident. It is also worth noting that it was Lead Independent Director Anthony Kiernan who made the biggest single purchase, worth AU$66k, paying AU$9.48 per share.
Along with the insider buying, another encouraging sign for Northern Star Resources is that insiders, as a group, have a considerable shareholding. With a whopping AU$102m worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to make me think that management will be very focussed on long term growth.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Stuart Tonkin is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations over AU$10b, like Northern Star Resources, the median CEO pay is around AU$4.5m.
The CEO of Northern Star Resources only received AU$2.1m in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Does Northern Star Resources Deserve A Spot On Your Watchlist?
One important encouraging feature of Northern Star Resources is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. You should always think about risks though. Case in point, we've spotted 1 warning sign for Northern Star Resources you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Northern Star Resources, 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.
This article by Simply Wall St is general in nature. 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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