Stock Analysis

Do Cryosite's (ASX:CTE) Earnings Warrant Your Attention?

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ASX:CTE
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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 completely lacks a track record of revenue and 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.

So if you're like me, you might be more interested in profitable, growing companies, like Cryosite (ASX:CTE). 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.

Check out our latest analysis for Cryosite

Cryosite's Earnings Per Share Are Growing.

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. I, for one, am blown away by the fact that Cryosite has grown EPS by 44% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Cryosite shareholders can take confidence from the fact that EBIT margins are up from 8.7% to 14%, and revenue is growing. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
ASX:CTE Earnings and Revenue History May 2nd 2022

Cryosite isn't a huge company, given its market capitalization of AU$32m. That makes it extra important to check on its balance sheet strength.

Are Cryosite Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

One shining light for Cryosite is the serious outlay one insider has made to buy shares, in the last year. Specifically, in one large transaction Non Executive Director Andrew Kroger paid AU$671k, for stock at AU$0.43 per share. It doesn't get much better than that, in terms of large investments from insiders.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Cryosite insiders own more than a third of the company. Actually, with 50% of the company to their names, insiders are profoundly invested in the business. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Valued at only AU$32m Cryosite is really small for a listed company. That means insiders only have AU$16m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, John Hogg, is paid less than the median for similar sized companies. For companies with market capitalizations under AU$282m, like Cryosite, the median CEO pay is around AU$405k.

The Cryosite CEO received AU$337k in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Is Cryosite Worth Keeping An Eye On?

Cryosite's earnings have taken off like any random crypto-currency did, back in 2017. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest Cryosite belongs on the top of your watchlist. Even so, be aware that Cryosite is showing 3 warning signs in our investment analysis , you should know about...

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

Valuation is complex, but we're helping make it simple.

Find out whether Cryosite is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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