Does Gaming Realms (LON:GMR) Deserve A Spot On Your Watchlist?

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 Gaming Realms (LON:GMR). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Gaming Realms

How Fast Is Gaming Realms Growing Its Earnings Per Share?

In the last three years Gaming Realms' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Gaming Realms' EPS skyrocketed from UK£0.012 to UK£0.02, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 62%.

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 music to the ears of Gaming Realms shareholders is that EBIT margins have grown from 19% to 22% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Gaming Realms' future EPS 100% free.

Are Gaming Realms Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.

Any way you look at it Gaming Realms shareholders can gain quiet confidence from the fact that insiders shelled out UK£314k to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that there are brighter days ahead. It is also worth noting that it was Independent Non Executive Director Mark Blandford who made the biggest single purchase, worth UK£180k, paying UK£0.35 per share.

On top of the insider buying, it's good to see that Gaming Realms insiders have a valuable investment in the business. To be specific, they have UK£24m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 20% of the shares on issue for the business, an appreciable amount considering the market cap.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because Gaming Realms' CEO, Mark Segal, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Gaming Realms with market caps between UK£80m and UK£319m is about UK£616k.

Gaming Realms offered total compensation worth UK£373k to its CEO in the year to December 2022. That seems pretty reasonable, especially given it's below the median for similar 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 good governance, more generally.

Does Gaming Realms Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Gaming Realms' strong EPS growth. Furthermore, company insiders have been adding to their significant stake in the company. So it's fair to say that this stock may well deserve a spot on your watchlist. Of course, just because Gaming Realms is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

The good news is that Gaming Realms is not the only growth stock with insider buying. Here's a list of growth-focused companies in GB 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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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.