Stock Analysis

Here's Why We Think Water Intelligence (LON:WATR) Is Well Worth Watching

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AIM:WATR
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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Water Intelligence (LON:WATR). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for Water Intelligence

How Quickly Is Water Intelligence Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. I, for one, am blown away by the fact that Water Intelligence has grown EPS by 54% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

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. The good news is that Water Intelligence is growing revenues, and EBIT margins improved by 3.7 percentage points to 12%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
AIM:WATR Earnings and Revenue History June 10th 2021

Since Water Intelligence is no giant, with a market capitalization of UK£141m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Water Intelligence Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, 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 good news for Water Intelligence shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Executive Director Robert Knell bought US$31k worth of shares at an average price of around US$4.75.

Along with the insider buying, another encouraging sign for Water Intelligence is that insiders, as a group, have a considerable shareholding. To be specific, they have US$35m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 25% of the company; visible skin in the game.

Does Water Intelligence Deserve A Spot On Your Watchlist?

Water Intelligence's earnings have taken off like any random crypto-currency did, back in 2017. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Water Intelligence deserves timely attention. Even so, be aware that Water Intelligence is showing 2 warning signs in our investment analysis , you should know about...

The good news is that Water Intelligence 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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