Stock Analysis

If You Like EPS Growth Then Check Out Water Intelligence (LON:WATR) Before It's Too Late

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AIM:WATR
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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Water Intelligence (LON:WATR). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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

Water Intelligence's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. I, for one, am blown away by the fact that Water Intelligence has grown EPS by 54% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

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 2.1 percentage points to 9.6%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

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.

earnings-and-revenue-history
AIM:WATR Earnings and Revenue History February 15th 2021

Water Intelligence isn't a huge company, given its market capitalization of UK£79m. That makes it extra important to check on its balance sheet strength.

Are Water Intelligence Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We haven't seen any insiders selling Water Intelligence shares, in the last year. With that in mind, it's heartening that Robert Knell, the Executive Director of the company, paid US$31k for shares at around US$4.75 each.

Along with the insider buying, another encouraging sign for Water Intelligence is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$20m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 25% of the company, demonstrating a degree of high-level alignment with shareholders.

Should You Add Water Intelligence To Your Watchlist?

Water Intelligence's earnings per share have taken off like a rocket aimed right at the moon. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. 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. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Water Intelligence that you should be aware of.

As a growth investor I do like to see insider buying. But Water Intelligence isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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