Stock Analysis

We Ran A Stock Scan For Earnings Growth And Converge Technology Solutions (TSE:CTS) Passed With Ease

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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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Converge Technology Solutions

Converge Technology Solutions' Improving Profits

Converge Technology Solutions has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, Converge Technology Solutions' EPS grew from CA$0.045 to CA$0.10, over the previous 12 months. Year on year growth of 124% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.

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. Converge Technology Solutions maintained stable EBIT margins over the last year, all while growing revenue 78% to CA$2.0b. 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.

TSX:CTS Earnings and Revenue History September 16th 2022

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Converge Technology Solutions' future profits.

Are Converge Technology Solutions Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The real kicker here is that Converge Technology Solutions insiders spent a staggering CA$2.1m on acquiring shares in just one year, without single share being sold in the meantime. Knowing this, Converge Technology Solutions will have have all eyes on them in anticipation for the what could happen in the near future. It is also worth noting that it was CEO & Director Shaun Maine who made the biggest single purchase, worth CA$1.3m, paying 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. With a whopping CA$70m worth of shares as a group, insiders have plenty riding on the company's success. This would indicate that the goals of shareholders and management are one and the same.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Shaun Maine, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to Converge Technology Solutions, with market caps between CA$528m and CA$2.1b, is around CA$2.1m.

The CEO of Converge Technology Solutions only received CA$987k in total compensation for the year ending December 2021. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. 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 a culture of integrity, in a broader sense.

Does Converge Technology Solutions Deserve A Spot On Your Watchlist?

Converge Technology Solutions' earnings have taken off in quite an impressive fashion. Just as heartening; insiders both own and are buying more stock. 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.

Valuation is complex, but we're helping make it simple.

Find out whether Converge Technology Solutions is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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