Stock Analysis

Here's Why We Think Calfrac Well Services (TSE:CFW) Is Well Worth Watching

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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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Calfrac Well Services (TSE:CFW). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Calfrac Well Services with the means to add long-term value to shareholders.

See our latest analysis for Calfrac Well Services

How Fast Is Calfrac Well Services Growing Its Earnings Per Share?

Over the last three years, Calfrac Well Services has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, Calfrac Well Services' EPS grew from CA$0.83 to CA$2.30, over the previous 12 months. It's not often a company can achieve year-on-year growth of 178%.

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. The good news is that Calfrac Well Services is growing revenues, and EBIT margins improved by 5.5 percentage points to 11%, over the last year. Both of which are great metrics to check off for potential growth.

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

TSX:CFW Earnings and Revenue History May 1st 2024

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Calfrac Well Services' future EPS 100% free.

Are Calfrac Well Services Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.

Even though some insiders sold down their holdings, their actions speak louder than words with CA$395k more invested than sold by people who know they company best. You could argue that level of buying implies genuine confidence in the business. We also note that it was the Independent Director, Charles Pellerin, who made the biggest single acquisition, paying CA$173k for shares at about CA$3.85 each.

On top of the insider buying, it's good to see that Calfrac Well Services insiders have a valuable investment in the business. Indeed, they hold CA$43m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 12% of the company; visible skin in the game.

Does Calfrac Well Services Deserve A Spot On Your Watchlist?

Calfrac Well Services' earnings have taken off in quite an impressive fashion. What's more, insiders own a significant stake in the company and have been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Calfrac Well Services belongs near the top of your watchlist. Before you take the next step you should know about the 2 warning signs for Calfrac Well Services that we have uncovered.

Keen growth investors love to see insider buying. Thankfully, Calfrac Well Services isn't the only one. You can see a a curated list of Canadian companies which have exhibited consistent growth accompanied by recent insider buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we're helping make it simple.

Find out whether Calfrac Well Services is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.