Here's Why We Think Hammond Manufacturing (TSE:HMM.A) Is Well Worth Watching

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and 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.

So if you're like me, you might be more interested in profitable, growing companies, like Hammond Manufacturing (TSE:HMM.A). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Hammond Manufacturing

How Quickly Is Hammond Manufacturing Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, Hammond Manufacturing's EPS has grown 19% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. While revenue is looking a bit flat, the good news is EBIT margins improved by 2.9 percentage points to 8.0%, in the last twelve months. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

Hammond Manufacturing isn't a huge company, given its market capitalization of CA$32m. That makes it extra important to check on its balance sheet strength.

Are Hammond Manufacturing Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We haven't seen any insiders selling Hammond Manufacturing shares, in the last year. So it's definitely nice that Chairman & CEO Robert Hammond bought CA$8.3k worth of shares at an average price of around CA$1.65.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Hammond Manufacturing insiders own more than a third of the company. In fact, they own 39% of the shares, making insiders a very influential shareholder group. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Of course, Hammond Manufacturing is a very small company, with a market cap of only CA$32m. So despite a large proportional holding, insiders only have CA$12m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

Is Hammond Manufacturing Worth Keeping An Eye On?

For growth investors like me, Hammond Manufacturing's raw rate of earnings growth is a beacon in the night. Better still, insiders own a large chunk of the company and one has even been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. What about risks? Every company has them, and we've spotted 2 warning signs for Hammond Manufacturing you should know about.

The good news is that Hammond Manufacturing 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. 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.
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