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. 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 Supremex (TSE:SXP). 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 Supremex Growing Its Earnings Per Share?
Supremex 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. Outstandingly, Supremex's EPS shot from CA$0.38 to CA$0.84, over the last year. It's a rarity to see 122% year-on-year growth like that.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The good news is that Supremex is growing revenues, and EBIT margins improved by 4.7 percentage points to 13%, over the last year. Ticking those two boxes is a good sign of growth, in our book.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
Since Supremex is no giant, with a market capitalisation of CA$120m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Supremex Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
While Supremex insiders did net CA$325k selling stock over the last year, they invested CA$636k, a much higher figure. You could argue that level of buying implies genuine confidence in the business. We also note that it was the company insider, George Christopoulos, who made the biggest single acquisition, paying CA$325k for shares at about CA$3.57 each.
These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Supremex will reveal that insiders own a significant piece of the pie. Actually, with 36% of the company to their names, insiders are profoundly invested in the business. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. With that sort of holding, insiders have about CA$42m riding on the stock, at current prices. So there's plenty there to keep them focused!
Is Supremex Worth Keeping An Eye On?
Supremex'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 Supremex 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 Supremex that you should be aware of.
The good news is that Supremex 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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here