Here's Why I Think Majestic Gold (CVE:MJS) Is An Interesting Stock

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.

So if you're like me, you might be more interested in profitable, growing companies, like Majestic Gold (CVE:MJS). 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.

View our latest analysis for Majestic Gold

How Fast Is Majestic Gold Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Majestic Gold has grown EPS by 35% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Majestic Gold shareholders can take confidence from the fact that EBIT margins are up from 29% to 40%, and revenue is growing. 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.

Majestic Gold isn't a huge company, given its market capitalization of CA$58m. That makes it extra important to check on its balance sheet strength.

Are Majestic Gold Insiders Aligned With All Shareholders?

As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalizations under CA$255m, like Majestic Gold, the median CEO pay is around CA$204k.

Majestic Gold offered total compensation worth CA$102k to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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. I'd also argue reasonable pay levels attest to good decision making more generally.

Is Majestic Gold Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Majestic Gold's strong EPS growth. With swiftly growing earnings, it probably has its best days ahead, and the modest CEO pay suggests the company is careful with cash. So I'd argue this is the kind of stock worth watching, even if it isn't great value today. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Majestic Gold that you should be aware of.

Although Majestic Gold certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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. 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.
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