Do Panama Petrochem's (NSE:PANAMAPET) Earnings Warrant Your Attention?

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 Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Panama Petrochem (NSE:PANAMAPET). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Panama Petrochem

How Quickly Is Panama Petrochem Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. I, for one, am blown away by the fact that Panama Petrochem has grown EPS by 49% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Panama Petrochem shareholders can take confidence from the fact that EBIT margins are up from 4.9% to 14%, and revenue is growing. 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. To see the actual numbers, click on the chart.

Since Panama Petrochem is no giant, with a market capitalization of ₹16b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Panama Petrochem Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news is that Panama Petrochem insiders spent a whopping ₹61m on stock in just one year, and I didn't see any selling. As if for a flower bud approaching bloom, I become an expectant observer, anticipating with hope, that something splendid is coming. It is also worth noting that it was MD, CEO & Executive Director Amin Rayani who made the biggest single purchase, worth ₹15m, paying ₹73.23 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Panama Petrochem insiders own more than a third of the company. In fact, they own 54% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This makes me think they will be incentivised to plan for the long term - something I like to see. In terms of absolute value, insiders have ₹8.6b invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Does Panama Petrochem Deserve A Spot On Your Watchlist?

Panama Petrochem's earnings per share have taken off like a rocket aimed right at the moon. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest Panama Petrochem belongs on the top of your watchlist. You should always think about risks though. Case in point, we've spotted 1 warning sign for Panama Petrochem you should be aware of.

As a growth investor I do like to see insider buying. But Panama Petrochem 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.

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.

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