Does PHX Energy Services (TSE:PHX) Deserve A Spot On Your Watchlist?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in PHX Energy Services (TSE:PHX). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for PHX Energy Services

How Fast Is PHX Energy Services 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. Which is why EPS growth is looked upon so favourably. It's an outstanding feat for PHX Energy Services to have grown EPS from CA$0.49 to CA$1.50 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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 PHX Energy Services is growing revenues, and EBIT margins improved by 8.0 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.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for PHX Energy Services.

Are PHX Energy Services Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. PHX Energy Services followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they hold CA$61m worth of its stock. That's a lot of money, and no small incentive to work hard. As a percentage, this totals to 16% of the shares on issue for the business, an appreciable amount considering the market cap.

Is PHX Energy Services Worth Keeping An Eye On?

PHX Energy Services' earnings per share have been soaring, with growth rates sky high. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, PHX Energy Services is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. You should always think about risks though. Case in point, we've spotted 3 warning signs for PHX Energy Services you should be aware of, and 2 of them can't be ignored.

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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.