Here's Why I Think Pro-Pac Packaging (ASX:PPG) Might Deserve Your Attention Today

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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.

In contrast to all that, I prefer to spend time on companies like Pro-Pac Packaging (ASX:PPG), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Pro-Pac Packaging

Pro-Pac Packaging's Improving Profits

Over the last three years, Pro-Pac Packaging has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Pro-Pac Packaging boosted its trailing twelve month EPS from AU$0.0082 to AU$0.0097, in the last year. I doubt many would complain about that 18% gain.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While Pro-Pac Packaging may have maintained EBIT margins over the last year, revenue has fallen. Suffice it to say that is not a great sign of growth.

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

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Pro-Pac Packaging.

Are Pro-Pac Packaging 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. 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.

We note that Pro-Pac Packaging insiders spent AU$255k on stock, over the last year; in contrast, we didn't see any selling. That's nice to see, because it suggests insiders are optimistic. It is also worth noting that it was Independent Non-Executive Director Rupert Harrington who made the biggest single purchase, worth AU$100k, paying AU$0.20 per share.

Is Pro-Pac Packaging Worth Keeping An Eye On?

As I already mentioned, Pro-Pac Packaging is a growing business, which is what I like to see. Not every business can grow its EPS, but Pro-Pac Packaging certainly can. The gravy on the mushroom pie is the insider buying, which has me tasting potential opportunity; one for the watchlist, I'd posit. However, before you get too excited we've discovered 3 warning signs for Pro-Pac Packaging (1 makes us a bit uncomfortable!) that you should be aware of.

As a growth investor I do like to see insider buying. But Pro-Pac Packaging 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.

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.

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