With EPS Growth And More, Plejd (NGM:PLEJD) Is Interesting

By
Simply Wall St
Published
January 15, 2022
NGM:PLEJD
Source: Shutterstock

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

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Plejd (NGM:PLEJD). 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.

View our latest analysis for Plejd

Plejd's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud Plejd's stratospheric annual EPS growth of 50%, compound, 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 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 Plejd is growing revenues, and EBIT margins improved by 5.6 percentage points to 13%, over the last year. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
NGM:PLEJD Earnings and Revenue History January 15th 2022

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 Plejd's balance sheet strength, before getting too excited.

Are Plejd 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. 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.

First things first; I didn't see insiders sell Plejd shares in the last year. But the really good news is that Director Erik Calissendorff spent kr1.9m buying stock stock, at an average price of around kr384. To me that means at least one insider thinks that the company is doing well - and they are backing that view with cash.

Along with the insider buying, another encouraging sign for Plejd is that insiders, as a group, have a considerable shareholding. Indeed, they hold kr170m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 4.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Is Plejd Worth Keeping An Eye On?

Plejd's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. 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 Plejd belongs on the top of your watchlist. It is worth noting though that we have found 1 warning sign for Plejd that you need to take into consideration.

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