Is Now The Time To Put Pilbara Minerals (ASX:PLS) On Your Watchlist?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.

In contrast to all that, many investors prefer to focus on companies like Pilbara Minerals (ASX:PLS), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Pilbara Minerals with the means to add long-term value to shareholders.

View our latest analysis for Pilbara Minerals

Pilbara Minerals' Improving Profits

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So for many budding investors, improving EPS is considered a good sign. It's an outstanding feat for Pilbara Minerals to have grown EPS from AU$0.19 to AU$0.79 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Pilbara Minerals shareholders can take confidence from the fact that EBIT margins are up from 65% to 79%, and revenue is growing. Both of which are great metrics to check off for potential growth.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Pilbara Minerals' future EPS 100% free.

Are Pilbara Minerals Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news for Pilbara Minerals shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Independent Non-Executive Director Miriam Stanborough bought AU$69k worth of shares at an average price of around AU$3.86. It seems that at least one insider is prepared to show the market there is potential within Pilbara Minerals.

On top of the insider buying, it's good to see that Pilbara Minerals insiders have a valuable investment in the business. As a matter of fact, their holding is valued at AU$63m. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.6% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Should You Add Pilbara Minerals To Your Watchlist?

Pilbara Minerals' earnings per share have been soaring, with growth rates sky high. The icing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Pilbara Minerals belongs near the top of your watchlist. You still need to take note of risks, for example - Pilbara Minerals has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

The good news is that Pilbara Minerals is not the only growth stock with insider buying. Here's a list of them... with 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.