Here's Why We Think CoTec Holdings (CVE:CTH) Is Well Worth Watching

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like CoTec Holdings (CVE:CTH). 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 CoTec Holdings

CoTec Holdings' Improving Profits

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. Which is why EPS growth is looked upon so favourably. It's an outstanding feat for CoTec Holdings to have grown EPS from CA$0.053 to CA$0.17 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?

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. Not all of CoTec Holdings' revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. CoTec Holdings shareholders can take confidence from the fact that EBIT margins are up from 56% to 71%, and revenue is growing. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

CoTec Holdings isn't a huge company, given its market capitalisation of CA$35m. That makes it extra important to check on its balance sheet strength.

Are CoTec Holdings Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

While CoTec Holdings insiders did net CA$345k selling stock over the last year, they invested CA$790k, a much higher figure. You could argue that level of buying implies genuine confidence in the business. We also note that it was the Non-Executive Director, Sharon Fay, who made the biggest single acquisition, paying CA$238k for shares at about CA$0.50 each.

Is CoTec Holdings Worth Keeping An Eye On?

CoTec Holdings' earnings per share have been soaring, with growth rates sky high. Most growth-seeking investors will find it hard to ignore that sort of explosive EPS growth. And indeed, it could be a sign that the business is at an inflection point. If this these factors intrigue you, then an addition of CoTec Holdings to your watchlist won't go amiss. Even so, be aware that CoTec Holdings is showing 4 warning signs in our investment analysis , and 2 of those don't sit too well with us...

Keen growth investors love to see insider buying. Thankfully, CoTec Holdings 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.