If EPS Growth Is Important To You, Tourmaline Oil (TSE:TOU) Presents An Opportunity

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

In contrast to all that, many investors prefer to focus on companies like Tourmaline Oil (TSE:TOU), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Tourmaline Oil with the means to add long-term value to shareholders.

See our latest analysis for Tourmaline Oil

Tourmaline Oil's Improving Profits

Over the last three years, Tourmaline Oil has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. Outstandingly, Tourmaline Oil's EPS shot from CA$6.49 to CA$13.24, over the last year. Year on year growth of 104% is certainly a sight to behold. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Tourmaline Oil shareholders can take confidence from the fact that EBIT margins are up from 36% to 54%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

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 Tourmaline Oil's future EPS 100% free.

Are Tourmaline 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The real kicker here is that Tourmaline Oil insiders spent a staggering CA$9.2m on acquiring shares in just one year, without single share being sold in the meantime. Buying like that is a fantastic look for the company and should rouse the market in anticipation for the future. We also note that it was the Chairman of the Board, Michael Rose, who made the biggest single acquisition, paying CA$763k for shares at about CA$77.43 each.

The good news, alongside the insider buying, for Tourmaline Oil bulls is that insiders (collectively) have a meaningful investment in the stock. We note that their impressive stake in the company is worth CA$1.2b. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because Tourmaline Oil's CEO, Mike Rose, is paid at a relatively modest level when compared to other CEOs for companies of this size. For companies with market capitalisations over CA$11b, like Tourmaline Oil, the median CEO pay is around CA$12m.

Tourmaline Oil's CEO took home a total compensation package of CA$5.6m in the year prior to 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 remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Tourmaline Oil Worth Keeping An Eye On?

Tourmaline Oil's earnings per share growth have been climbing higher at an appreciable rate. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Tourmaline Oil deserves timely attention. It is worth noting though that we have found 2 warning signs for Tourmaline Oil (1 is potentially serious!) that you need to take into consideration.

Keen growth investors love to see insider buying. Thankfully, Tourmaline 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.