Should You Be Adding Ambertech (ASX:AMO) To Your Watchlist Today?

By
Simply Wall St
Published
October 12, 2021
ASX:AMO
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In contrast to all that, I prefer to spend time on companies like Ambertech (ASX:AMO), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Ambertech

How Fast Is Ambertech Growing Its Earnings Per Share?

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Ambertech's EPS went from AU$0.014 to AU$0.064 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. Ambertech shareholders can take confidence from the fact that EBIT margins are up from 2.0% to 6.6%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

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.

earnings-and-revenue-history
ASX:AMO Earnings and Revenue History October 12th 2021

Ambertech isn't a huge company, given its market capitalization of AU$29m. That makes it extra important to check on its balance sheet strength.

Are Ambertech Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

We haven't seen any insiders selling Ambertech shares, in the last year. So it's definitely nice that Non-Executive Chairman Peter Wallace bought AU$23k worth of shares at an average price of around AU$0.23.

On top of the insider buying, we can also see that Ambertech insiders own a large chunk of the company. In fact, they own 57% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Valued at only AU$29m Ambertech is really small for a listed company. So despite a large proportional holding, insiders only have AU$17m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Does Ambertech Deserve A Spot On Your Watchlist?

Ambertech's earnings per share have taken off like a rocket aimed right at the moon. 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 Ambertech belongs on the top of your watchlist. What about risks? Every company has them, and we've spotted 5 warning signs for Ambertech you should know about.

The good news is that Ambertech 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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