Does Birchcliff Energy (TSE:BIR) Deserve A Spot On Your Watchlist?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Birchcliff Energy (TSE:BIR). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

View our latest analysis for Birchcliff Energy

How Fast Is Birchcliff Energy Growing Its Earnings Per Share?

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So for many budding investors, improving EPS is considered a good sign. It is awe-striking that Birchcliff Energy's EPS went from CA$0.33 to CA$2.20 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?

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. The good news is that Birchcliff Energy is growing revenues, and EBIT margins improved by 46.5 percentage points to 69%, over the last year. Both of which are great metrics to check off for potential growth.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Birchcliff Energy?

Are Birchcliff Energy Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.

While Birchcliff Energy insiders did net CA$64k selling stock over the last year, they invested CA$920k, a much higher figure. You could argue that level of buying implies genuine confidence in the business. It is also worth noting that it was Executive Vice President of Operations David Humphreys who made the biggest single purchase, worth CA$634k, paying CA$10.79 per share.

The good news, alongside the insider buying, for Birchcliff Energy bulls is that insiders (collectively) have a meaningful investment in the stock. As a matter of fact, their holding is valued at CA$63m. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 2.0%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, Jeff Tonken is paid comparatively modestly to CEOs at similar sized companies. The median total compensation for CEOs of companies similar in size to Birchcliff Energy, with market caps between CA$1.3b and CA$4.2b, is around CA$3.0m.

The Birchcliff Energy CEO received CA$1.9m in compensation for the year ending December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Birchcliff Energy Deserve A Spot On Your Watchlist?

Birchcliff Energy's earnings have taken off in quite an impressive fashion. Just as heartening; insiders both own and are buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Birchcliff Energy belongs near the top of your watchlist. Now, you could try to make up your mind on Birchcliff Energy by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

The good news is that Birchcliff Energy 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.