With EPS Growth And More, NTG Clarity Networks (CVE:NCI) Makes An Interesting Case

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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 NTG Clarity Networks (CVE:NCI). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for NTG Clarity Networks

NTG Clarity Networks' Improving Profits

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. Which is why EPS growth is looked upon so favourably. It's an outstanding feat for NTG Clarity Networks to have grown EPS from CA$0.024 to CA$0.13 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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 NTG Clarity Networks achieved similar EBIT margins to last year, revenue grew by a solid 87% to CA$47m. That's encouraging news for the company!

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.

NTG Clarity Networks isn't a huge company, given its market capitalisation of CA$75m. That makes it extra important to check on its balance sheet strength.

Are NTG Clarity Networks Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So those who are interested in NTG Clarity Networks will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Actually, with 38% of the company to their names, insiders are profoundly invested in the business. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. With that sort of holding, insiders have about CA$29m riding on the stock, at current prices. So there's plenty there to keep them focused!

Should You Add NTG Clarity Networks To Your Watchlist?

NTG Clarity Networks' earnings per share have been soaring, with growth rates sky high. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching NTG Clarity Networks very closely. You should always think about risks though. Case in point, we've spotted 4 warning signs for NTG Clarity Networks you should be aware of, and 1 of them is a bit concerning.

Although NTG Clarity Networks certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Canadian companies that not only boast of strong growth but have strong insider backing.

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.