It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. 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 the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Clinuvel Pharmaceuticals (ASX:CUV). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Clinuvel Pharmaceuticals Growing Its Earnings Per Share?
Over the last three years, Clinuvel Pharmaceuticals 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. Like a wedge-tailed eagle on the wind, Clinuvel Pharmaceuticals’s EPS soared from AU$0.28 to AU$0.38, in just one year. That’s a commendable gain of 36%.
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. Not all of Clinuvel Pharmaceuticals’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. Clinuvel Pharmaceuticals shareholders can take confidence from the fact that EBIT margins are up from 48% to 54%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
You don’t drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Clinuvel Pharmaceuticals’s future profits.
Are Clinuvel Pharmaceuticals 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
We haven’t seen any insiders selling Clinuvel Pharmaceuticals shares, in the last year. With that in mind, it’s heartening that Jeffrey Rosenfeld, the Non Executive Director of the company, paid AU$30k for shares at around AU$27.44 each.
Along with the insider buying, another encouraging sign for Clinuvel Pharmaceuticals is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth AU$211m. Coming in at 15% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.
Does Clinuvel Pharmaceuticals Deserve A Spot On Your Watchlist?
You can’t deny that Clinuvel Pharmaceuticals has grown its earnings per share at a very impressive rate. That’s attractive. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. One of Buffett’s considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing Clinuvel Pharmaceuticals’s ROE with industry peers (and the market at large).
As a growth investor I do like to see insider buying. But Clinuvel Pharmaceuticals 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
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