Is Now The Time To Put Perenti (ASX:PRN) 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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

See our latest analysis for Perenti

Perenti's Improving Profits

In the last three years Perenti'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. So it would be better to isolate the growth rate over the last year for our analysis. To the delight of shareholders, Perenti's EPS soared from AU$0.049 to AU$0.081, over the last year. That's a commendable gain of 67%.

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. While we note Perenti achieved similar EBIT margins to last year, revenue grew by a solid 21% to AU$2.7b. That's encouraging news for the company!

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Perenti's forecast profits?

Are Perenti 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, small purchases are not always indicative of conviction, and insiders don't always get it right.

Not only did Perenti insiders refrain from selling stock during the year, but they also spent AU$110k buying it. That paints the company in a nice light, as it signals that its leaders are feeling confident in where the company is heading. Zooming in, we can see that the biggest insider purchase was by Independent Non-Executive Director Craig Laslett for AU$94k worth of shares, at about AU$0.94 per share.

On top of the insider buying, it's good to see that Perenti insiders have a valuable investment in the business. Given insiders own a significant chunk of shares, currently valued at AU$81m, they have plenty of motivation to push the business to succeed. At 9.7% of the company, the co-investment by insiders fosters confidence that management will make long-term focussed decisions.

Is Perenti Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Perenti's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. These things considered, this is one stock worth watching. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Perenti. You might benefit from giving it a glance today.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Perenti, 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. 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.