Yahoo Finance If EPS Growth Is Important To You, Parex Resources (TSE:PXT) Presents An Opportunity
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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
In contrast to all that, many investors prefer to focus on companies like Parex Resources (TSE:PXT), which has not only revenues, but also profits. While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
See our latest analysis for Parex Resources
How Fast Is Parex Resources Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Parex Resources' EPS has grown 29% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
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 good news is that Parex Resources is growing revenues, and EBIT margins improved by 10.8 percentage points to 61%, over the last year. Both of which are great metrics to check off for potential growth.
The chart below shows how the company's bottom and top lines have progressed 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 Parex Resources.
Are Parex Resources Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Even though some insiders sold down their holdings, their actions speak louder than words with US$496k more invested than sold by people who know they company best. You could argue that level of buying implies genuine confidence in the business. Zooming in, we can see that the biggest insider purchase was by Chairman of the Board Wayne Foo for CA$158k worth of shares, at about CA$21.07 per share.
The good news, alongside the insider buying, for Parex Resources bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$49m worth of shares. This considerable investment should help drive long-term value in the business. Even though that's only about 2.0% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Should You Add Parex Resources To Your Watchlist?
You can't deny that Parex Resources has grown its earnings per share at a very impressive rate. That's attractive. Furthermore, company insiders have been adding to their significant stake in the company. Astute investors will want to keep this stock on watch. It is worth noting though that we have found 1 warning sign for Parex Resources that you need to take into consideration.
The good news is that Parex Resources is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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