Here's Why I Think BQE Water (CVE:BQE) Is An Interesting Stock

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.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in BQE Water (CVE:BQE). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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 BQE Water

BQE Water's Improving Profits

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. It's good to see that BQE Water's EPS have grown from CA$0.53 to CA$0.61 over twelve months. I doubt many would complain about that 16% gain.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). While we note BQE Water's EBIT margins were flat over the last year, revenue grew by a solid 34% to CA$7.5m. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

BQE Water isn't a huge company, given its market capitalization of CA$25m. That makes it extra important to check on its balance sheet strength.

Are BQE Water Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

In the last year insider at BQE Water were both selling and buying shares; but happily, as a group they spent CA$123k more on stock, than they netted from selling it. On balance, that's a good sign. It is also worth noting that it was Robert Stein who made the biggest single purchase, worth CA$37k, paying CA$11.25 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since BQE Water insiders own more than a third of the company. Indeed, with a collective holding of 54%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. Of course, BQE Water is a very small company, with a market cap of only CA$25m. That means insiders only have CA$13m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!

Should You Add BQE Water To Your Watchlist?

As I already mentioned, BQE Water is a growing business, which is what I like to see. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Still, you should learn about the 1 warning sign we've spotted with BQE Water .

The good news is that BQE Water 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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