Do Karelia Tobacco Company’s (ATH:KARE) Earnings Warrant Your Attention?

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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 completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Karelia Tobacco Company (ATH:KARE). 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.

See our latest analysis for Karelia Tobacco Company

How Quickly Is Karelia Tobacco Company Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Karelia Tobacco Company managed to grow EPS by 14% per year, over three years. That’s a good rate of growth, if it can be sustained.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. It seems Karelia Tobacco Company is pretty stable, since revenue and EBIT margins are pretty flat year on year. That’s not bad, but it doesn’t point to ongoing future growth, either.

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.

ATSE:KARE Income Statement, May 1st 2019
ATSE:KARE Income Statement, May 1st 2019

While it’s always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Karelia Tobacco Company’s balance sheet strength, before getting too excited.

Are Karelia Tobacco Company Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So we’re pleased to report that Karelia Tobacco Company insiders own a meaningful share of the business. In fact, hey own 88% of the company, so they will share in the same delights and challenged experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term – something I like to see. And that holding is extremely valuable at the current share price, totalling €631m. Now that’s what I call some serious skin in the game!

Should You Add Karelia Tobacco Company To Your Watchlist?

One positive for Karelia Tobacco Company is that it is growing EPS. That’s nice to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. The combination sparks joy for me, so I’d consider keeping the company on a watchlist. While we’ve looked at the quality of the earnings, we haven’t yet done any work to value the stock. So if you like to buy cheap, you may want to check if Karelia Tobacco Company is trading on a high P/E or a low P/E, relative to its industry.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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

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.