Here's Why I Think Tesgas (WSE:TSG) Might Deserve Your Attention Today

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.

In contrast to all that, I prefer to spend time on companies like Tesgas (WSE:TSG), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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 Tesgas

How Fast Is Tesgas Growing Its Earnings Per Share?

In the last three years Tesgas's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like a wedge-tailed eagle on the wind, Tesgas's EPS soared from zł0.32 to zł0.51, in just one year. That's a commendable gain of 58%.

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. Tesgas's EBIT margins have actually improved by 2.6 percentage points in the last year, to reach 6.6%, but, on the flip side, revenue was down 3.7%. That falls short of ideal.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Tesgas isn't a huge company, given its market capitalization of zł57m. That makes it extra important to check on its balance sheet strength.

Are Tesgas Insiders Aligned With All Shareholders?

Personally, I like to see high insider ownership of a company, since it suggests that it will be managed in the interests of shareholders. So as you can imagine, the fact that Tesgas insiders own a significant number of shares certainly appeals to me. In fact, they own 45% of the shares, making insiders a very influential shareholder group. 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. Valued at only zł57m Tesgas is really small for a listed company. So despite a large proportional holding, insiders only have zł26m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

Should You Add Tesgas To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Tesgas's strong EPS growth. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Tesgas that you should be aware of.

Although Tesgas certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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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