Here's Why We Think Softchoice (TSE:SFTC) Might Deserve Your Attention Today

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Softchoice (TSE:SFTC). 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 Softchoice

How Fast Is Softchoice Growing Its Earnings Per Share?

Over the last three years, Softchoice has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. Softchoice's EPS skyrocketed from US$0.50 to US$0.64, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 29%.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. We note that while EBIT margins have improved from 6.9% to 9.8%, the company has actually reported a fall in revenue by 12%. While not disastrous, these figures could be better.

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.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Softchoice's forecast profits?

Are Softchoice Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. 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.

Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But the real excitement comes from the US$88k that Chief Financial Officer Jonathan Roiter spent buying shares (at an average price of about US$17.23). Strong buying like that could be a sign of opportunity.

The good news, alongside the insider buying, for Softchoice bulls is that insiders (collectively) have a meaningful investment in the stock. Given insiders own a significant chunk of shares, currently valued at US$71m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. The cherry on top is that the CEO, Andrew Caprara is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations between US$400m and US$1.6b, like Softchoice, the median CEO pay is around US$1.9m.

Softchoice offered total compensation worth US$1.5m to its CEO in the year to December 2023. That is actually below the median for CEO's of similarly sized companies. 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. It can also be a sign of a culture of integrity, in a broader sense.

Does Softchoice Deserve A Spot On Your Watchlist?

For growth investors, Softchoice's raw rate of earnings growth is a beacon in the night. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. So it's fair to say that this stock may well deserve a spot on your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Softchoice (at least 1 which shouldn't be ignored) , and understanding these should be part of your investment process.

Keen growth investors love to see insider activity. Thankfully, Softchoice isn't the only one. You can see a a curated list of Canadian companies which have exhibited consistent growth accompanied by high insider ownership.

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.