Stock Analysis

With EPS Growth And More, Circa Enterprises (CVE:CTO) Is Interesting

TSXV:CTO
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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Circa Enterprises (CVE:CTO). 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 Circa Enterprises

Circa Enterprises's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Circa Enterprises managed to grow EPS by 13% per year, over three years. That's a good rate of growth, if it can be sustained.

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. Circa Enterprises shareholders can take confidence from the fact that EBIT margins are up from 3.7% to 6.4%, and revenue is growing. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
TSXV:CTO Earnings and Revenue History July 15th 2021

Since Circa Enterprises is no giant, with a market capitalization of CA$13m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Circa Enterprises 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, small purchases are not always indicative of conviction, and insiders don't always get it right.

Not only did Circa Enterprises insiders refrain from selling stock during the year, but they also spent CA$82k buying it. That puts the company in a nice light, as it makes me think its leaders are feeling confident. Zooming in, we can see that the biggest insider purchase was by Independent Director Robert Johnston for CA$40k worth of shares, at about CA$1.18 per share.

On top of the insider buying, we can also see that Circa Enterprises insiders own a large chunk of the company. In fact, they own 49% 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, Circa Enterprises is a very small company, with a market cap of only CA$13m. That means insiders only have CA$6.2m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Is Circa Enterprises Worth Keeping An Eye On?

One important encouraging feature of Circa Enterprises is that it is growing profits. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Even so, be aware that Circa Enterprises is showing 3 warning signs in our investment analysis , you should know about...

The good news is that Circa Enterprises 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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