Should You Be Adding GoldSpot Discoveries (CVE:SPOT) To Your Watchlist Today?

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 as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like GoldSpot Discoveries (CVE:SPOT), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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 GoldSpot Discoveries

GoldSpot Discoveries's Improving Profits

In the last three years GoldSpot Discoveries's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a wedge-tailed eagle on the wind, GoldSpot Discoveries's EPS soared from CA$0.061 to CA$0.081, in just one year. That's a commendable gain of 32%.

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. I note that GoldSpot Discoveries's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. The good news is that GoldSpot Discoveries is growing revenues, and EBIT margins improved by 30.6 percentage points to 26%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

GoldSpot Discoveries isn't a huge company, given its market capitalization of CA$83m. That makes it extra important to check on its balance sheet strength.

Are GoldSpot Discoveries 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. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We do note that, in the last year, insiders sold -CA$48k worth of shares. But that's far less than the CA$13m insiders spend purchasing stock. This makes me even more interested in GoldSpot Discoveries because it suggests that those who understand the company best, are optimistic. Zooming in, we can see that the biggest insider purchase was by Eric Sprott for CA$9.1m worth of shares, at about CA$0.97 per share.

Along with the insider buying, another encouraging sign for GoldSpot Discoveries is that insiders, as a group, have a considerable shareholding. Indeed, they hold CA$19m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 23% of the company; visible skin in the game.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Vincent Dube-Bourgeois, is paid less than the median for similar sized companies. For companies with market capitalizations under CA$256m, like GoldSpot Discoveries, the median CEO pay is around CA$212k.

The GoldSpot Discoveries CEO received CA$155k in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. 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 GoldSpot Discoveries Worth Keeping An Eye On?

For growth investors like me, GoldSpot Discoveries's raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. What about risks? Every company has them, and we've spotted 5 warning signs for GoldSpot Discoveries you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of GoldSpot Discoveries, 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.