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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. But as Warren Buffett has mused, ‘If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.’ When they buy such story stocks, investors are all too often the patsy.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Quinsam Capital (CNSX:QCA). While profit is not necessarily a social good, it’s easy to admire a business than can consistently produce it. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
How Fast Is Quinsam Capital Growing Its Earnings Per Share?
In the last three years Quinsam Capital’s earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn’t tell us much. As a result, I’ll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Quinsam Capital’s EPS shot from CA$0.052 to CA$0.093, over the last year. Year on year growth of 79% is certainly a sight to behold.
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). I note that Quinsam Capital’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While Quinsam Capital did well to grow revenue over the last year, EBIT margins were dampened at the same time. So it seems the future my hold further growth, especially if EBIT margins can stabilize.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Since Quinsam Capital 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 Quinsam Capital 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.
Over the last 12 months Quinsam Capital insiders spent CA$226k more buying shares than they received from selling them. On balance, that’s a good sign. Zooming in, we can see that the biggest insider purchase was by CEO & Director Roger Dent for CA$106k worth of shares, at about CA$0.21 per share.
Is Quinsam Capital Worth Keeping An Eye On?
Quinsam Capital’s earnings per share have taken off like a rocket aimed right at the moon. If you’re like me, you’ll find it hard to ignore that sort of explosive EPS growth. And indeed, it could be a sign that the business is at an inflection point. If that’s the case, you may regret neglecting to put Quinsam Capital on your watchlist. One of Buffett’s considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing Quinsam Capital’s ROE with industry peers (and the market at large).
The good news is that Quinsam Capital is not the only growth stock with insider buying. Here’s a 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
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.