Should You Be Adding Sietel (ASX:SSL) To Your Watchlist Today?

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Sietel (ASX:SSL). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

View our latest analysis for Sietel

How Fast Is Sietel Growing Its Earnings Per Share?

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So EPS growth can certainly encourage an investor to take note of a stock. Sietel's EPS has risen over the last 12 months, growing from AU$0.26 to AU$0.31. There's little doubt shareholders would be happy with that 17% gain.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Our analysis has highlighted that Sietel's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. The good news is that Sietel is growing revenues, and EBIT margins improved by 3.4 percentage points to 20%, over the last year. 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.

Sietel isn't a huge company, given its market capitalisation of AU$68m. That makes it extra important to check on its balance sheet strength.

Are Sietel Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. 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.

We haven't seen any insiders selling Sietel shares, in the last year. With that in mind, it's heartening that Richard Rees, the MD, Company Secretary & Director of the company, paid AU$28k for shares at around AU$8.50 each. It seems that at least one insider is prepared to show the market there is potential within Sietel.

Recent insider purchases of Sietel stock is not the only way management has kept the interests of the general public shareholders in mind. Specifically, the CEO is paid quite reasonably for a company of this size. For companies with market capitalisations under AU$306m, like Sietel, the median CEO pay is around AU$422k.

Sietel's CEO took home a total compensation package worth AU$313k in the year leading up to September 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 a culture of integrity, in a broader sense.

Is Sietel Worth Keeping An Eye On?

One important encouraging feature of Sietel is that it is growing profits. And that's not all. We've also seen insiders buying stock, and noted modest executive pay. If these factors aren't enough to secure Sietel a spot on the watchlist, then it certainly warrants a closer look at the very least. We should say that we've discovered 2 warning signs for Sietel (1 doesn't sit too well with us!) that you should be aware of before investing here.

The good news is that Sietel 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.

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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.