Stock Analysis

We Ran A Stock Scan For Earnings Growth And Pipestone Energy (TSE:PIPE) Passed With Ease

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TSX:PIPE
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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 Pipestone Energy (TSE:PIPE). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Pipestone Energy with the means to add long-term value to shareholders.

Check out the opportunities and risks within the CA Oil and Gas industry.

How Fast Is Pipestone Energy Growing Its Earnings Per Share?

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So for many budding investors, improving EPS is considered a good sign. It is awe-striking that Pipestone Energy's EPS went from CA$0.077 to CA$0.78 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. 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 music to the ears of Pipestone Energy shareholders is that EBIT margins have grown from 15% to 50% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
TSX:PIPE Earnings and Revenue History December 9th 2022

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 Pipestone Energy's future EPS 100% free.

Are Pipestone 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Insiders in Pipestone Energy both added to and reduced their holdings over the preceding 12 months. All in all though, their acquisitions outweighed the amount of shares they sold off. When you weigh that up, it is a mild positive, indicating increased alignment between shareholders and management. We also note that it was the company insider, Thomas Claugus, who made the biggest single acquisition, paying CA$102k for shares at about CA$2.70 each.

On top of the insider buying, it's good to see that Pipestone Energy insiders have a valuable investment in the business. To be specific, they have CA$18m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 2.1% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add Pipestone Energy To Your Watchlist?

Pipestone Energy's earnings have taken off in quite an impressive fashion. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Pipestone Energy deserves timely attention. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Pipestone Energy that you should be aware of.

Keen growth investors love to see insider buying. Thankfully, Pipestone Energy 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.

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

Find out whether Pipestone Energy 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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