Does Atlas Pearls (ASX:ATP) Deserve A Spot On Your Watchlist?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Atlas Pearls (ASX:ATP). 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.

View our latest analysis for Atlas Pearls

Atlas Pearls' Improving Profits

Atlas Pearls 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, Atlas Pearls' EPS shot from AU$0.011 to AU$0.021, over the last year. It's not often a company can achieve year-on-year growth of 98%. The best case scenario? That the business has hit a true inflection point.

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. The music to the ears of Atlas Pearls shareholders is that EBIT margins have grown from 18% to 35% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Atlas Pearls isn't a huge company, given its market capitalisation of AU$45m. That makes it extra important to check on its balance sheet strength.

Are Atlas Pearls 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.

It's nice to see that there have been no reports of any insiders selling shares in Atlas Pearls in the previous 12 months. So it's definitely nice that Non-Executive Director Timothy Martin bought AU$56k worth of shares at an average price of around AU$0.055. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Atlas Pearls.

Recent insider purchases of Atlas Pearls stock is not the only way management has kept the interests of the general public shareholders in mind. Namely, Atlas Pearls has a very reasonable level of CEO pay. For companies with market capitalisations under AU$315m, like Atlas Pearls, the median CEO pay is around AU$454k.

Atlas Pearls' CEO took home a total compensation package worth AU$307k in the year leading up to June 2023. 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.

Is Atlas Pearls Worth Keeping An Eye On?

Atlas Pearls' earnings per share growth have been climbing higher at an appreciable rate. Not to mention the company's insiders have been adding to their portfolios and the CEO's remuneration policy looks to have had shareholders in mind seeing as it's quite modest for the company size. The strong EPS growth suggests Atlas Pearls may be at an inflection point. For those attracted to fast growth, we'd suggest this stock merits monitoring. We don't want to rain on the parade too much, but we did also find 2 warning signs for Atlas Pearls that you need to be mindful of.

Keen growth investors love to see insider buying. Thankfully, Atlas Pearls isn't the only one. You can see a a free list of them here.

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.