Here's Why We Think Prairie Provident Resources (TSE:PPR) Might Deserve Your Attention Today

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

In contrast to all that, many investors prefer to focus on companies like Prairie Provident Resources (TSE:PPR), which has not only revenues, but also profits. 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.

See our latest analysis for Prairie Provident Resources

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. So it would be better to isolate the growth rate over the last year for our analysis. To the delight of shareholders, Prairie Provident Resources' EPS soared from CA$0.039 to CA$0.064, over the last year. That's a impressive gain of 66%.

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. It's noted that, last year, Prairie Provident Resources' revenue from operations was lower than its revenue, so that could distort our analysis of its margins. The good news is that Prairie Provident Resources is growing revenues, and EBIT margins improved by 46.0 percentage points to 5.7%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

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

Prairie Provident Resources isn't a huge company, given its market capitalisation of CA$20m. That makes it extra important to check on its balance sheet strength.

Are Prairie Provident Resources 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Shareholders in Prairie Provident Resources will be more than happy to see insiders committing themselves to the company, spending CA$394k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. Zooming in, we can see that the biggest insider purchase was by Independent Non-Executive Director Matthew Shyba for CA$80k worth of shares, at about CA$0.23 per share.

Recent insider purchases of Prairie Provident Resources stock is not the only way management has kept the interests of the general public shareholders in mind. Specifically, the CEO is paid quite reasonably for a company of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Prairie Provident Resources with market caps under CA$272m is about CA$235k.

The CEO of Prairie Provident Resources only received CA$83k in total compensation for the year ending December 2021. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Should You Add Prairie Provident Resources To 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. And that's not the only positive either. We have both insider buying and reasonable and remuneration to consider. All in all, this stock is worth the time to delve deeper into the details. However, before you get too excited we've discovered 4 warning signs for Prairie Provident Resources (3 can't be ignored!) that you should be aware of.

The good news is that Prairie Provident Resources is not the only growth stock with insider buying. Here's a list of them... 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.