Here's Why I Think Fab-Form Industries (CVE:FBF) Might Deserve Your Attention Today

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Fab-Form Industries (CVE:FBF). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Fab-Form Industries

How Fast Is Fab-Form Industries Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud Fab-Form Industries's stratospheric annual EPS growth of 48%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

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. The good news is that Fab-Form Industries is growing revenues, and EBIT margins improved by 4.4 percentage points to 21%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Fab-Form Industries isn't a huge company, given its market capitalization of CA$8.0m. That makes it extra important to check on its balance sheet strength.

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

We haven't seen any insiders selling Fab-Form Industries shares, in the last year. With that in mind, it's heartening that Don Russell, the Independent Chairman of the Board of the company, paid CA$7.8k for shares at around CA$0.55 each.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Fab-Form Industries insiders own more than a third of the company. In fact, they own 37% of the shares, making insiders a very influential shareholder group. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. Of course, Fab-Form Industries is a very small company, with a market cap of only CA$8.0m. That means insiders only have CA$3.0m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Rick Fearn is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Fab-Form Industries with market caps under CA$254m is about CA$204k.

Fab-Form Industries offered total compensation worth CA$130k to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Should You Add Fab-Form Industries To Your Watchlist?

Fab-Form Industries's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Fab-Form Industries deserves timely attention. It is worth noting though that we have found 3 warning signs for Fab-Form Industries (1 doesn't sit too well with us!) that you need to take into consideration.

As a growth investor I do like to see insider buying. But Fab-Form Industries 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.