Does Proteome Sciences (LON:PRM) 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. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Proteome Sciences (LON:PRM), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Proteome Sciences

How Fast Is Proteome Sciences Growing Its Earnings Per Share?

In the last three years Proteome Sciences's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like the last firework on New Year's Eve accelerating into the sky, Proteome Sciences's EPS shot from UK£0.0005 to UK£0.001, over the last year. Year on year growth of 100% is certainly a sight to behold.

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. Proteome Sciences shareholders can take confidence from the fact that EBIT margins are up from 6.4% to 12%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Since Proteome Sciences is no giant, with a market capitalization of UK£23m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Proteome Sciences 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Not only did Proteome Sciences insiders refrain from selling stock during the year, but they also spent UK£78k buying it. That's nice to see, because it suggests insiders are optimistic. It is also worth noting that it was Independent Non Executive Director Roger McDowell who made the biggest single purchase, worth UK£45k, paying UK£0.05 per share.

Should You Add Proteome Sciences To Your Watchlist?

Proteome Sciences's earnings have taken off like any random crypto-currency did, back in 2017. If you're like me, you'll find it hard to ignore that sort of explosive EPS growth. And indeed, it could be a sign that the business is at an inflection point. For me, this situation certainly piques my interest. You should always think about risks though. Case in point, we've spotted 4 warning signs for Proteome Sciences you should be aware of, and 2 of them can't be ignored.

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