Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Prairie Provident Resources (TSE:PPR). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Prairie Provident Resources with the means to add long-term value to shareholders.
Prairie Provident Resources' Improving Profits
Prairie Provident Resources has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. To the delight of shareholders, Prairie Provident Resources' EPS soared from CA$0.039 to CA$0.064, over the last year. That's a impressive gain of 66%.
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. It's noted that, last year, Prairie Provident Resources' revenue from operations was lower than its revenue, so that could distort our analysis of its margins. The music to the ears of Prairie Provident Resources shareholders is that EBIT margins have grown from -40% to 5.7% in the last 12 months and revenues are on an upwards trend as well. 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. Click on the chart to see the exact numbers.
Since Prairie Provident Resources is no giant, with a market capitalisation of CA$17m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Prairie Provident Resources Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.
It's good to see Prairie Provident Resources insiders walking the walk, by spending CA$414k on shares in just twelve months. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. It is also worth noting that it was Independent Non-Executive Director Matthew Shyba who made the biggest single purchase, worth CA$80k, paying CA$0.23 per share.
It's commendable to see that insiders have been buying shares in Prairie Provident Resources, but there is more evidence of shareholder friendly management. Namely, Prairie Provident Resources has a very reasonable level of CEO pay. Our analysis has discovered that the median total compensation for the CEOs of companies like Prairie Provident Resources with market caps under CA$267m is about CA$229k.
The Prairie Provident Resources CEO received total compensation of just CA$83k in the year to December 2021. That looks like a modest pay packet, 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.
Is Prairie Provident Resources Worth Keeping An Eye On?
For growth investors, Prairie Provident Resources' raw rate of earnings growth is a beacon in the night. To add to the positives, Prairie Provident Resources has recorded instances of insider buying and a modest executive pay to boot. On balance the message seems to be that this stock is worth looking at, at least for a while. Before you take the next step you should know about the 4 warning signs for Prairie Provident Resources (3 are concerning!) that we have uncovered.
The good news is that Prairie Provident 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.
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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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