Stock Analysis

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

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Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Cryosite (ASX:CTE). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Cryosite

How Quickly Is Cryosite Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Cryosite managed to grow EPS by 12% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.

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 music to the ears of Cryosite shareholders is that EBIT margins have grown from 12% to 16% in the last 12 months and revenues are on an upwards trend as well. 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. For finer detail, click on the image.

ASX:CTE Earnings and Revenue History February 7th 2023

Cryosite isn't a huge company, given its market capitalisation of AU$39m. That makes it extra important to check on its balance sheet strength.

Are Cryosite 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

It's pleasing to note that insiders spent AU$2.6m buying Cryosite shares, over the last year, without reporting any share sales whatsoever. Buying like that is a fantastic look for the company and should rouse the market in anticipation for the future. It is also worth noting that it was Non Executive Director Andrew Kroger who made the biggest single purchase, worth AU$671k, paying AU$0.43 per share.

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. In fact, they own 58% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. With that sort of holding, insiders have about AU$23m riding on the stock, at current prices. So there's plenty there to keep them focused!

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, John Hogg is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations under AU$290m, like Cryosite, the median CEO pay is around AU$423k.

Cryosite offered total compensation worth AU$251k to its CEO in the year to June 2022. That comes in below the average for similar sized companies and seems pretty reasonable. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Should You Add Cryosite To Your Watchlist?

As previously touched on, Cryosite is a growing business, which is encouraging. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. Before you take the next step you should know about the 1 warning sign for Cryosite that we have uncovered.

The good news is that Cryosite 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.

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

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