Here's Why We Think Karoon Energy (ASX:KAR) Might Deserve Your Attention Today

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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Karoon Energy (ASX:KAR), which has not only revenues, but also profits. 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.

Check out our latest analysis for Karoon Energy

How Fast Is Karoon Energy Growing Its Earnings Per Share?

In the last three years Karoon Energy's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Karoon Energy's EPS skyrocketed from US$0.20 to US$0.31, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 54%.

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. Karoon Energy shareholders can take confidence from the fact that EBIT margins are up from 42% to 51%, and revenue is growing. 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. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of Karoon Energy's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Karoon Energy 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. 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.

Any way you look at it Karoon Energy shareholders can gain quiet confidence from the fact that insiders shelled out US$1.0m to buy stock, over the last year. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. We also note that it was the MD, CEO & Director, Julian Fowles, who made the biggest single acquisition, paying AU$368k for shares at about AU$2.05 each.

Is Karoon Energy Worth Keeping An Eye On?

You can't deny that Karoon Energy has grown its earnings per share at a very impressive rate. That's attractive. Not only is that growth rate rather juicy, but the insider buying adds fuel to the fire. To put it succinctly; Karoon Energy is a strong candidate for your watchlist. It is worth noting though that we have found 3 warning signs for Karoon Energy (2 shouldn't be ignored!) that you need to take into consideration.

Keen growth investors love to see insider activity. Thankfully, Karoon Energy isn't the only one. You can see a a curated list of Australian companies which have exhibited consistent growth accompanied by high insider ownership.

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