Here's Why Prairie Provident Resources (TSE:PPR) Has Caught The Eye Of Investors

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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Prairie Provident Resources (TSE:PPR). 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.

Our analysis indicates that PPR is potentially undervalued!

Prairie Provident Resources' Improving Profits

Prairie Provident Resources has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Prairie Provident Resources' EPS skyrocketed from CA$0.039 to CA$0.064, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 66%.

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. It's noted that Prairie Provident Resources' revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. The music to the ears of Prairie Provident Resources shareholders is that EBIT margins have grown from -42% to 5.9% 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.

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.

Prairie Provident Resources isn't a huge company, given its market capitalisation of CA$30m. That makes it extra important to check on its balance sheet strength.

Are Prairie Provident Resources 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, small purchases are not always indicative of conviction, and insiders don't always get it right.

Shareholders in Prairie Provident Resources will be more than happy to see insiders committing themselves to the company, spending CA$414k on shares in just twelve months. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. It is also worth noting that it was Independent Non-Executive Director Matthew Shyba who made the biggest single purchase, worth CA$80k, paying CA$0.23 per share.

Does Prairie Provident Resources Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Prairie Provident Resources' strong EPS growth. Not only is that growth rate rather juicy, but the insider buying adds fuel to the fire. In essence, your time will not be wasted checking out Prairie Provident Resources in more detail. It is worth noting though that we have found 4 warning signs for Prairie Provident Resources (3 are potentially serious!) that you need to take into consideration.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Prairie Provident Resources, you'll probably love this free list of growing companies that insiders are buying.

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.