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

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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Ambertech (ASX:AMO). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.

See our latest analysis for Ambertech

How Fast Is Ambertech Growing Its Earnings Per Share?

In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. It is therefore awe-striking that Ambertech's EPS went from AU$0.014 to AU$0.055 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. Could this be a sign that the business has reached an inflection point?

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. 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. Click on the chart to see the exact numbers.

Ambertech isn't a huge company, given its market capitalization of AU$37m. 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

In the last twelve months Ambertech insiders spent AU$28k on stock; good news for shareholders. While this isn't much, we also note an absence of sales. It is also worth noting that it was Non-Executive Chairman Peter Wallace who made the biggest single purchase, worth AU$23k, paying AU$0.23 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Ambertech insiders own more than a third of the company. In fact, they own 49% of the shares, making insiders a very influential shareholder group. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. Valued at only AU$37m Ambertech is really small for a listed company. So despite a large proportional holding, insiders only have AU$18m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

Does Ambertech Deserve A Spot On Your Watchlist?

Ambertech's earnings have taken off like any random crypto-currency did, back in 2017. What's more insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Ambertech deserves timely attention. Don't forget that there may still be risks. For instance, we've identified 4 warning signs for Ambertech that you should be aware of.

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

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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.