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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
So if you’re like me, you might be more interested in profitable, growing companies, like Eland Oil & Gas (LON:ELA). Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Fast Is Eland Oil & Gas Growing?
If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, Eland Oil & Gas’s EPS has grown 28% each year, compound, over three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.
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. The good news is that Eland Oil & Gas is growing revenues, and EBIT margins improved by 65.8 percentage points to 47%, over the last year. That’s great to see, on both counts.
The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.
Fortunately, we’ve got access to analyst forecasts of Eland Oil & Gas’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Eland Oil & Gas Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
The good news for Eland Oil & Gas shareholders is that no insiders reported selling shares in the last year. So it’s definitely nice that CFO & Executive Director Ronald Bain bought US$19k worth of shares at an average price of around US$1.09.
Should You Add Eland Oil & Gas To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Eland Oil & Gas’s strong EPS growth. The growth rate whets my appetite for research, and the insider buying only increases my interest in the stock. To put it succinctly; Eland Oil & Gas is a strong candidate for your watchlist. While we’ve looked at the quality of the earnings, we haven’t yet done any work to value the stock. So if you like to buy cheap, you may want to check if Eland Oil & Gas is trading on a high P/E or a low P/E, relative to its industry.
The good news is that Eland Oil & Gas is not the only growth stock with insider buying. Here’s a 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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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.