Here's Why Proteome Sciences (LON:PRM) Has Caught The Eye Of Investors

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 Proteome Sciences (LON:PRM). 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 Proteome Sciences

Proteome Sciences' Improving Profits

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. Which is why EPS growth is looked upon so favourably. Commendations have to be given in seeing that Proteome Sciences grew its EPS from UK£0.00024 to UK£0.0045, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. Could this be a sign that the business has reached an inflection point?

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. Proteome Sciences shareholders can take confidence from the fact that EBIT margins are up from 8.0% to 22%, and revenue is growing. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

Since Proteome Sciences is no giant, with a market capitalisation of UK£25m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Proteome Sciences Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, 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.

The good news for Proteome Sciences shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that company insider Martin Diggle bought UK£12k worth of shares at an average price of around UK£0.04. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Proteome Sciences.

On top of the insider buying, we can also see that Proteome Sciences insiders own a large chunk of the company. Actually, with 37% of the company to their names, insiders are profoundly invested in the business. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Of course, Proteome Sciences is a very small company, with a market cap of only UK£25m. That means insiders only have UK£9.3m worth of shares, despite the large proportional holding. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Should You Add Proteome Sciences To Your Watchlist?

Proteome Sciences' earnings have taken off in quite an impressive fashion. The cherry on top is that insiders own a bunch of shares, and one has been buying more. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Proteome Sciences belongs near the top of your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Proteome Sciences (at least 3 which are concerning) , and understanding them should be part of your investment process.

Keen growth investors love to see insider buying. Thankfully, 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. 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.