Yahoo Finance Here's Why We Think Peyto Exploration & Development (TSE:PEY) Is Well Worth Watching
The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.
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 Peyto Exploration & Development (TSE:PEY). 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 Peyto Exploration & Development
Peyto Exploration & Development's Improving Profits
Over the last three years, Peyto Exploration & Development has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, Peyto Exploration & Development's EPS grew from CA$1.27 to CA$2.19, over the previous 12 months. It's a rarity to see 73% year-on-year growth like that. 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. The good news is that Peyto Exploration & Development is growing revenues, and EBIT margins improved by 4.2 percentage points to 38%, 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.
Fortunately, we've got access to analyst forecasts of Peyto Exploration & Development's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Peyto Exploration & Development 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
The real kicker here is that Peyto Exploration & Development insiders spent a staggering CA$7.4m on acquiring shares in just one year, without single share being sold in the meantime. Knowing this, Peyto Exploration & Development will have have all eyes on them in anticipation for the what could happen in the near future. We also note that it was the Independent Chairman of the Board, Donald Gray, who made the biggest single acquisition, paying CA$3.8m for shares at about CA$14.60 each.
The good news, alongside the insider buying, for Peyto Exploration & Development bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold CA$65m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 3.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because on our analysis the CEO, JP Lachance, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Peyto Exploration & Development with market caps between CA$1.4b and CA$4.4b is about CA$3.3m.
Peyto Exploration & Development offered total compensation worth CA$2.5m to its CEO in the year to December 2022. That is actually below the median for CEO's of similarly 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.
Should You Add Peyto Exploration & Development To Your Watchlist?
Peyto Exploration & Development's earnings per share have been soaring, with growth rates sky high. What's more, insiders own a significant stake in the company and have been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Peyto Exploration & Development belongs near the top of your watchlist. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Peyto Exploration & Development 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 Peyto Exploration & Development, 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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