Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in StrongPoint (OB:STRONG). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Fast Is StrongPoint Growing?
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. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years StrongPoint grew its EPS by 6.3% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
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). StrongPoint maintained stable EBIT margins over the last year, all while growing revenue 2.6% to kr1.1b. That's progress.
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.
StrongPoint isn't a huge company, given its market capitalization of kr795m. That makes it extra important to check on its balance sheet strength.
Are StrongPoint 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Any way you look at it StrongPoint shareholders can gain quiet confidence from the fact that insiders shelled out kr2.7m to buy stock, over the last year. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. It is also worth noting that it was Chief Executive Officer Jacob Tveraabak who made the biggest single purchase, worth kr328k, paying kr12.29 per share.
Along with the insider buying, another encouraging sign for StrongPoint is that insiders, as a group, have a considerable shareholding. Indeed, they hold kr113m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 14% of the company, demonstrating a degree of high-level alignment with shareholders.
Is StrongPoint Worth Keeping An Eye On?
One positive for StrongPoint is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. We should say that we've discovered 2 warning signs for StrongPoint that you should be aware of before investing here.
As a growth investor I do like to see insider buying. But StrongPoint 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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