It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
So if you're like me, you might be more interested in profitable, growing companies, like Northern Star Resources (ASX:NST). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
Northern Star Resources's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, Northern Star Resources has grown EPS by 5.8% per year. While that sort of growth rate isn't amazing, it does show the business is growing.
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 Northern Star Resources is growing revenues, and EBIT margins improved by 4.7 percentage points to 21%, over the last year. 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.
Fortunately, we've got access to analyst forecasts of Northern Star Resources's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Northern Star Resources Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.
Despite -AU$4.3m worth of sales, Northern Star Resources insiders have overwhelmingly been buying the stock, spending AU$4.8m on purchases in the last twelve months. On balance, to me, this signals their optimism. It is also worth noting that it was Executive Chairman William Beament who made the biggest single purchase, worth AU$4.7m, paying AU$9.00 per share.
The good news, alongside the insider buying, for Northern Star Resources bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a glittering mountain of wealth invested in it, currently valued at AU$170m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Stuart Tonkin is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between AU$5.1b and AU$15b, like Northern Star Resources, the median CEO pay is around AU$3.3m.
Northern Star Resources offered total compensation worth AU$2.1m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Northern Star Resources To Your Watchlist?
As I already mentioned, Northern Star Resources is a growing business, which is what I like to see. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. You should always think about risks though. Case in point, we've spotted 1 warning sign for Northern Star Resources you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Northern Star Resources, you'll probably love this free list of growing companies that insiders are buying.
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. 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.
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