Should You Be Adding Converge Technology Solutions (TSE:CTS) To Your Watchlist Today?

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Converge Technology Solutions (TSE:CTS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Converge Technology Solutions with the means to add long-term value to shareholders.

View our latest analysis for Converge Technology Solutions

Converge Technology Solutions' Improving Profits

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. Which is why EPS growth is looked upon so favourably. Commendations have to be given in seeing that Converge Technology Solutions grew its EPS from CA$0.058 to CA$0.18, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. This could point to the business hitting a point of inflection.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Converge Technology Solutions achieved similar EBIT margins to last year, revenue grew by a solid 72% to CA$2.3b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Converge Technology Solutions?

Are Converge Technology Solutions Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The real kicker here is that Converge Technology Solutions insiders spent a staggering CA$2.3m on acquiring shares in just one year, without single share being sold in the meantime. Buying like that is a fantastic look for the company and should rouse the market in anticipation for the future. Zooming in, we can see that the biggest insider purchase was by CEO & Director Shaun Maine for CA$1.3m worth of shares, at about CA$7.08 per share.

Along with the insider buying, another encouraging sign for Converge Technology Solutions is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at CA$62m. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 5.4% of the company, demonstrating a degree of high-level alignment with shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, Shaun Maine is paid comparatively modestly to CEOs at similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Converge Technology Solutions with market caps between CA$539m and CA$2.2b is about CA$2.0m.

The CEO of Converge Technology Solutions only received CA$986k in total compensation for the year ending December 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Converge Technology Solutions Worth Keeping An Eye On?

Converge Technology Solutions' earnings have taken off in quite an impressive fashion. What's more, insiders own a significant stake in the company and have been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Converge Technology Solutions belongs near the top of your watchlist. You still need to take note of risks, for example - Converge Technology Solutions has 1 warning sign we think you should be aware of.

The good news is that Converge Technology Solutions 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.