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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Epiroc (STO:EPI A). While profit is not necessarily a social good, it’s easy to admire a business that can consistently produce it. 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 Epiroc Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Epiroc has managed to grow EPS by 22% per year over three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.
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. Epiroc maintained stable EBIT margins over the last year, all while growing revenue 6.7% to kr41b. That’s progress.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Epiroc.
Are Epiroc Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We note that Epiroc insiders spent kr1.1m on stock, over the last year; in contrast, we didn’t see any selling. That’s nice to see, because it suggests insiders are optimistic. We also note that it was the Senior Executive Vice President of Mining & Infrastructure, Helena Hedblom, who made the biggest single acquisition, paying kr345k for shares at about kr108 each.
Is Epiroc Worth Keeping An Eye On?
You can’t deny that Epiroc has grown its earnings per share at a very impressive rate. That’s attractive. Not only is that growth rate rather juicy, but the insider buying makes my mouth water. So on this analysis I believe Epiroc is probably worth spending some time on. Of course, just because Epiroc is growing does not mean it is undervalued. If you’re wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
As a growth investor I do like to see insider buying. But Epiroc 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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