If You Like EPS Growth Then Check Out Tree Island Steel (TSE:TSL) Before It's Too Late

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Tree Island Steel (TSE:TSL). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

See our latest analysis for Tree Island Steel

How Fast Is Tree Island Steel Growing Its Earnings Per Share?

In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. It is therefore awe-striking that Tree Island Steel's EPS went from CA$0.0084 to CA$1.08 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. Tree Island Steel shareholders can take confidence from the fact that EBIT margins are up from 4.0% to 16%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my 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.

Since Tree Island Steel is no giant, with a market capitalization of CA$165m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Tree Island Steel Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Not only did Tree Island Steel insiders refrain from selling stock during the year, but they also spent CA$151k buying it. That puts the company in a nice light, as it makes me think its leaders are feeling confident. We also note that it was the Independent Director, Theodore Leja, who made the biggest single acquisition, paying CA$75k for shares at about CA$3.80 each.

Is Tree Island Steel Worth Keeping An Eye On?

Tree Island Steel's earnings per share have taken off like a rocket aimed right at the moon. Growth investors should find it difficult to look past that strong EPS move. And indeed, it could be a sign that the business is at an inflection point. If that's the case, you may regret neglecting to put Tree Island Steel on your watchlist. What about risks? Every company has them, and we've spotted 3 warning signs for Tree Island Steel (of which 1 is significant!) you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Tree Island Steel, you'll probably love this free list of growing companies that insiders are buying.

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.