Stock Analysis

Here's Why We Think BQE Water (CVE:BQE) Is Well Worth Watching

TSXV:BQE
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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). 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.

View our latest analysis for BQE Water

How Fast Is BQE Water Growing Its Earnings Per Share?

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So EPS growth can certainly encourage an investor to take note of a stock. BQE Water boosted its trailing twelve month EPS from CA$0.53 to CA$0.61, in the last year. That's a 16% gain; respectable growth in the broader scheme of things.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. BQE Water maintained stable EBIT margins over the last year, all while growing revenue 34% to CA$7.5m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
TSXV:BQE Earnings and Revenue History December 15th 2020

Since BQE Water is no giant, with a market capitalization of CA$24m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are BQE Water 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. 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$177k more on stock, than they netted from selling it. Although I don't particularly like to see selling, the fact that they put more capital in, than they extracted, is a positive in my mind. Zooming in, we can see that the biggest insider purchase was by Robert Stein for CA$37k worth of shares, at about 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 57%, 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$24m. So despite a large proportional holding, insiders only have CA$13m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

Should You Add BQE Water To Your Watchlist?

One important encouraging feature of BQE Water is that it is growing profits. 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. However, before you get too excited we've discovered 2 warning signs for BQE Water (1 is significant!) that you should be aware of.

As a growth investor I do like to see insider buying. But BQE Water isn't the only one. You can see a a free list of them here.

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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