If EPS Growth Is Important To You, Major Drilling Group International (TSE:MDI) Presents An Opportunity

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.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Major Drilling Group International (TSE:MDI). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

View our latest analysis for Major Drilling Group International

Major Drilling Group International's Improving Profits

Major Drilling Group International 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. Impressively, Major Drilling Group International's EPS catapulted from CA$0.41 to CA$0.92, over the last year. Year on year growth of 126% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.

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. Major Drilling Group International shareholders can take confidence from the fact that EBIT margins are up from 7.4% to 14%, 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. For finer detail, click on the image.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Major Drilling Group International.

Are Major Drilling Group International 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. 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 Major Drilling Group International will be more than happy to see insiders committing themselves to the company, spending CA$301k 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. We also note that it was the company insider, Kelly Johnson, who made the biggest single acquisition, paying CA$79k for shares at about CA$7.87 each.

It's commendable to see that insiders have been buying shares in Major Drilling Group International, but there is more evidence of shareholder friendly management. Namely, Major Drilling Group International has a very reasonable level of CEO pay. The median total compensation for CEOs of companies similar in size to Major Drilling Group International, with market caps between CA$272m and CA$1.1b, is around CA$1.8m.

Major Drilling Group International offered total compensation worth CA$1.2m to its CEO in the year to April 2022. That comes in below the average for similar sized companies and seems pretty reasonable. 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 good governance, more generally.

Is Major Drilling Group International Worth Keeping An Eye On?

Major Drilling Group International's earnings have taken off in quite an impressive fashion. The company can also boast of insider buying, and reasonable remuneration for the CEO. The strong EPS growth suggests Major Drilling Group International may be at an inflection point. If these have piqued your interest, then this stock surely warrants a spot on your watchlist. Still, you should learn about the 1 warning sign we've spotted with Major Drilling Group International.

The good news is that Major Drilling Group International 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.