Is Now The Time To Put Atlas Pearls (ASX:ATP) On Your Watchlist?

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. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Atlas Pearls (ASX:ATP). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Atlas Pearls with the means to add long-term value to shareholders.

See our latest analysis for Atlas Pearls

How Fast Is Atlas Pearls Growing Its Earnings Per Share?

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So for many budding investors, improving EPS is considered a good sign. It's an outstanding feat for Atlas Pearls to have grown EPS from AU$0.0098 to AU$0.06 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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 music to the ears of Atlas Pearls shareholders is that EBIT margins have grown from 18% to 53% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

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.

Atlas Pearls isn't a huge company, given its market capitalisation of AU$41m. That makes it extra important to check on its balance sheet strength.

Are Atlas Pearls 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. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Insiders in Atlas Pearls both added to and reduced their holdings over the preceding 12 months. All in all though, their acquisitions outweighed the amount of shares they sold off. So, on balance, the insider transactions are mildly encouraging. It is also worth noting that it was Non-Executive Director Timothy Martin who made the biggest single purchase, worth AU$56k, paying AU$0.055 per share.

It's commendable to see that insiders have been buying shares in Atlas Pearls, but there is more evidence of shareholder friendly management. Specifically, the CEO is paid quite reasonably for a company of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Atlas Pearls with market caps under AU$301m is about AU$449k.

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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Atlas Pearls Deserve A Spot On Your Watchlist?

Atlas Pearls' earnings have taken off in quite an impressive fashion. 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. If these have piqued your interest, then this stock surely warrants a spot on your watchlist. What about risks? Every company has them, and we've spotted 4 warning signs for Atlas Pearls (of which 2 are a bit concerning!) you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Atlas Pearls, you'll probably love this curated collection of companies in AU that have an attractive valuation alongside 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com