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. 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 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 Birchcliff Energy (TSE:BIR). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Birchcliff Energy with the means to add long-term value to shareholders.
Birchcliff Energy's Improving Profits
In the last three years Birchcliff Energy's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. Impressively, Birchcliff Energy's EPS catapulted from CA$1.17 to CA$2.45, over the last year. It's not often a company can achieve year-on-year growth of 110%. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that Birchcliff Energy's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Birchcliff Energy shareholders can take confidence from the fact that EBIT margins are up from 46% to 62%, and revenue is growing. That's great to see, on both counts.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Birchcliff Energy's future EPS 100% free.
Are Birchcliff Energy 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
We do note that, in the last year, insiders sold CA$16k worth of shares. But that's far less than the CA$1.4m insiders spent purchasing stock. This bodes well for Birchcliff Energy as it highlights the fact that those who are important to the company having a lot of faith in its future. It is also worth noting that it was Executive Vice President of Operations David Humphreys who made the biggest single purchase, worth CA$634k, paying CA$10.79 per share.
Along with the insider buying, another encouraging sign for Birchcliff Energy is that insiders, as a group, have a considerable shareholding. Indeed, they hold CA$44m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 2.1% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
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. That's because on our analysis the CEO, Jeff Tonken, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to Birchcliff Energy, with market caps between CA$1.3b and CA$4.3b, is around CA$3.2m.
Birchcliff Energy offered total compensation worth CA$2.7m to its CEO in the year to December 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Does Birchcliff Energy Deserve A Spot On Your Watchlist?
Birchcliff Energy's earnings have taken off in quite an impressive fashion. Just as heartening; insiders both own and are buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Birchcliff Energy belongs near the top of your watchlist. However, before you get too excited we've discovered 1 warning sign for Birchcliff Energy that you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Birchcliff Energy, 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.
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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