Here's Why We Think Inno-Gene (WSE:IGN) 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 completely lacks a track record of revenue and profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Inno-Gene (WSE:IGN). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for Inno-Gene

How Fast Is Inno-Gene Growing Its Earnings Per Share?

In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that Inno-Gene grew its EPS from zł0.28 to zł1.35, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that Inno-Gene is growing revenues, and EBIT margins improved by 2.8 percentage points to 34%, over the last year. That's great to see, on both counts.

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.

Since Inno-Gene is no giant, with a market capitalization of zł45m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Inno-Gene 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The good news for Inno-Gene shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that Jacek Wojciechowicz, the President of the Management Board of the company, paid zł41k for shares at around zł10.23 each.

On top of the insider buying, we can also see that Inno-Gene insiders own a large chunk of the company. Actually, with 41% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. Of course, Inno-Gene is a very small company, with a market cap of only zł45m. So despite a large proportional holding, insiders only have zł19m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

Does Inno-Gene Deserve A Spot On Your Watchlist?

Inno-Gene's earnings per share have taken off like a rocket aimed right at the moon. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest Inno-Gene belongs on the top of your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Inno-Gene (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Inno-Gene, you'll probably love this free list of growing companies that insiders are buying.

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.