Here's Why We Think Proteome Sciences (LON:PRM) Is Well Worth Watching

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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing 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

In the last three years Proteome Sciences' 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. As a result, we'll zoom in on growth over the last year, instead. It's good to see that Proteome Sciences' EPS has grown from UK£0.0019 to UK£0.0023 over twelve months. This amounts to a 22% gain; a figure that shareholders will be pleased to see.

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 Proteome Sciences shareholders is that EBIT margins have grown from 15% to 17% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

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.

Since Proteome Sciences is no giant, with a market capitalisation of UK£15m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Proteome Sciences 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

It's nice to see that there have been no reports of any insiders selling shares in Proteome Sciences in the previous 12 months. With that in mind, it's heartening that Martin Diggle, the company insider of the company, paid UK£7.9k for shares at around UK£0.039 each. It seems that at least one insider is prepared to show the market there is potential within Proteome Sciences.

Is Proteome Sciences Worth Keeping An Eye On?

As previously touched on, Proteome Sciences is a growing business, which is encouraging. Not every business can grow its EPS, but Proteome Sciences certainly can. Despite there being a solitary insider adding to their holdings, it's enough to consider adding this to the watchlist. Still, you should learn about the 4 warning signs we've spotted with Proteome Sciences (including 2 which are a bit unpleasant).

The good news is that Proteome Sciences is not the only growth stock with insider buying. Here's 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.