With EPS Growth And More, Po Valley Energy (ASX:PVE) Makes An Interesting Case

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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.

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

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Po Valley Energy's Improving Profits

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. Which is why EPS growth is looked upon so favourably. It is awe-striking that Po Valley Energy's EPS went from €0.00051 to €0.0021 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. Po Valley Energy shareholders can take confidence from the fact that EBIT margins are up from 36% to 52%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

See our latest analysis for Po Valley Energy

Po Valley Energy isn't a huge company, given its market capitalisation of AU$51m. That makes it extra important to check on its balance sheet strength.

Are Po Valley Energy 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

In the last year insider at Po Valley Energy were both selling and buying shares; but happily, as a group they spent €185k more on stock, than they netted from selling it. On balance, that's a good sign. Zooming in, we can see that the biggest insider purchase was by Chairman Kevin Bailey for AU$258k worth of shares, at about AU$0.035 per share.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Po Valley Energy will reveal that insiders own a significant piece of the pie. In fact, they own 56% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. To give you an idea, the value of insiders' holdings in the business are valued at €28m at the current share price. That's nothing to sneeze at!

Should You Add Po Valley Energy To Your Watchlist?

Po Valley Energy's earnings have taken off in quite an impressive fashion. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Po Valley Energy deserves timely attention. You still need to take note of risks, for example - Po Valley Energy has 1 warning sign we think you should be aware of.

Keen growth investors love to see insider activity. Thankfully, Po Valley 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.