Should You Be Adding InPlay Oil (TSE:IPO) To Your Watchlist Today?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like InPlay Oil (TSE:IPO). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide InPlay Oil with the means to add long-term value to shareholders.

Check out our latest analysis for InPlay Oil

InPlay Oil's Improving Profits

In the last three years InPlay Oil's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, InPlay Oil's EPS grew from CA$0.67 to CA$1.28, over the previous 12 months. It's a rarity to see 91% year-on-year growth like that. That could be a sign that the business has reached a true inflection point.

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. InPlay Oil shareholders can take confidence from the fact that EBIT margins are up from -11% to 41%, and revenue is growing. 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.

InPlay Oil isn't a huge company, given its market capitalisation of CA$247m. That makes it extra important to check on its balance sheet strength.

Are InPlay Oil 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. 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.

We haven't seen any insiders selling InPlay Oil shares, in the last year. Add in the fact that Stephen Nikiforuk, the Lead Independent Director of the company, paid CA$62k for shares at around CA$3.39 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.

It's commendable to see that insiders have been buying shares in InPlay Oil, but there is more evidence of shareholder friendly management. To be specific, the CEO is paid modestly when compared to company peers of the same size. For companies with market capitalisations between CA$136m and CA$546m, like InPlay Oil, the median CEO pay is around CA$1.1m.

The InPlay Oil CEO received CA$972k in compensation for the year ending December 2021. That comes in below the average for similar sized companies and seems pretty reasonable. 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. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add InPlay Oil To Your Watchlist?

InPlay Oil's earnings per share have been soaring, with growth rates sky high. The company can also boast of insider buying, and reasonable remuneration for the CEO. It could be that InPlay Oil is at an inflection point, given the EPS growth. For those attracted to fast growth, we'd suggest this stock merits monitoring. Still, you should learn about the 3 warning signs we've spotted with InPlay Oil (including 2 which make us uncomfortable).

Keen growth investors love to see insider buying. Thankfully, InPlay Oil 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. 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.