Stock Analysis

Here's Why I Think Gale Pacific (ASX:GAP) Is An Interesting Stock

ASX:GAP
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Gale Pacific (ASX:GAP). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Gale Pacific

How Quickly Is Gale Pacific Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Gale Pacific has managed to grow EPS by 36% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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 Gale Pacific is growing revenues, and EBIT margins improved by 3.8 percentage points to 9.5%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
ASX:GAP Earnings and Revenue History April 15th 2021

Since Gale Pacific is no giant, with a market capitalization of AU$99m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Gale Pacific Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The good news for Gale Pacific shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Non-Executive Director Thomas Stianos bought AU$59k worth of shares at an average price of around AU$0.15.

Is Gale Pacific Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Gale Pacific's strong EPS growth. Not only is that growth rate rather juicy, but the insider buying makes my mouth water. So on this analysis I believe Gale Pacific is probably worth spending some time on. You should always think about risks though. Case in point, we've spotted 2 warning signs for Gale Pacific you should be aware of.

As a growth investor I do like to see insider buying. But Gale Pacific 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.

When trading Gale Pacific or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether Gale Pacific is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


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