Does Craneware (LON:CRW) Deserve A Spot On Your Watchlist?

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. And in . found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Craneware (LON:CRW). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for Craneware

How Fast Is Craneware Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, Craneware’s EPS has grown 19% each year, compound, over three years. As a result, we can understand why the stock trades on a high multiple of trailing twelve month earnings.

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. While we note Craneware’s EBIT margins were flat over the last year, revenue grew by a solid 16% to US$72m. That’s a real positive.

You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

AIM:CRW Income Statement, April 19th 2019
AIM:CRW Income Statement, April 19th 2019

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

Are Craneware Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.

Craneware top brass are certainly in sync, not having sold any shares, over the last year. But my excitement comes from the US$149k that Co-Founder Keith Neilson spent buying shares (at an average price of about US$30.82).

Along with the insider buying, another encouraging sign for Craneware is that insiders, as a group, have a considerable shareholding. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$175m. Coming in at 26% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Keith Neilson is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$400m and US$1.6b, like Craneware, the median CEO pay is around US$1.1m.

The Craneware CEO received US$878k in compensation for the year ending June 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I’d also argue reasonable pay levels attest to good decision making more generally.

Does Craneware Deserve A Spot On Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Craneware’s strong EPS growth. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. One of Buffett’s considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing Craneware’s ROE with industry peers (and the market at large).

As a growth investor I do like to see insider buying. But Craneware 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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.