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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
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 Journey Energy (TSE:JOY). 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.
How Fast Is Journey Energy Growing Its Earnings Per Share?
Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So for many budding investors, improving EPS is considered a good sign. It is awe-striking that Journey Energy's EPS went from CA$0.59 to CA$2.59 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. This could point to the business hitting a point of inflection.
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 Journey Energy is growing revenues, and EBIT margins improved by 32.0 percentage points to 37%, over the last year. Ticking those two boxes is a good sign of growth, in our book.
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 Journey Energy is no giant, with a market capitalisation of CA$302m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Journey Energy Insiders Aligned With All Shareholders?
It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Journey Energy followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have CA$26m worth of shares. That's a lot of money, and no small incentive to work hard. That amounts to 8.7% of the company, demonstrating a degree of high-level alignment with shareholders.
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Journey Energy with market caps between CA$137m and CA$548m is about CA$1.1m.
Journey Energy offered total compensation worth CA$834k to its CEO in the year to December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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.
Should You Add Journey Energy To Your Watchlist?
Journey Energy's earnings per share have been soaring, with growth rates sky high. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The strong EPS improvement suggests the businesses is humming along. Journey Energy certainly ticks a few boxes, so we think it's probably well worth further consideration. Before you take the next step you should know about the 2 warning signs for Journey Energy (1 doesn't sit too well with us!) that we have uncovered.
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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