With EPS Growth And More, Tourmaline Oil (TSE:TOU) Makes An Interesting Case

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 Tourmaline Oil (TSE:TOU). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Tourmaline Oil

How Fast Is Tourmaline Oil Growing Its Earnings Per Share?

In the last three years Tourmaline Oil's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Impressively, Tourmaline Oil's EPS catapulted from CA$5.56 to CA$16.29, over the last year. Year on year growth of 193% is certainly a sight to behold. The best case scenario? That the business has hit a true 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. The good news is that Tourmaline Oil is growing revenues, and EBIT margins improved by 77.7 percentage points to 101%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Tourmaline Oil?

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 CA$689k worth of shares that insiders sold during the last 12 months pales in comparison to the CA$6.7m they spent on acquiring shares in the company. We find this encouraging because it suggests they are optimistic about Tourmaline Oil'sfuture. It is also worth noting that it was Chairman of the Board Michael Rose who made the biggest single purchase, worth CA$763k, paying CA$77.43 per share.

Along with the insider buying, another encouraging sign for Tourmaline Oil is that insiders, as a group, have a considerable shareholding. Notably, they have an enviable stake in the company, worth CA$1.4b. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. 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. Our analysis has discovered that the median total compensation for the CEOs of companies like Tourmaline Oil, with market caps over CA$11b, is about CA$9.8m.

The Tourmaline Oil CEO received CA$5.6m in compensation for the year ending December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. It can also be a sign of a culture of integrity, in a broader sense.

Is Tourmaline Oil Worth Keeping An Eye On?

Tourmaline Oil's earnings have taken off in quite an impressive fashion. Just as heartening; insiders both own and are buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Tourmaline Oil belongs near the top of your watchlist. Even so, be aware that Tourmaline Oil is showing 4 warning signs in our investment analysis , and 2 of those are a bit unpleasant...

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.

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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.