Do Teqnion's (STO:TEQ) Earnings Warrant Your Attention?

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. 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 Teqnion (STO:TEQ). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Teqnion

Teqnion's Earnings Per Share Are 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. Impressively, Teqnion has grown EPS by 29% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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 Teqnion is growing revenues, and EBIT margins improved by 3.6 percentage points to 11%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

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

Since Teqnion is no giant, with a market capitalization of kr2.0b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Teqnion 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

In the last twelve months Teqnion insiders spent kr348k on stock; good news for shareholders. While this isn't much, we also note an absence of sales. We also note that it was the , Susanna Helgesen, who made the biggest single acquisition, paying kr257k for shares at about kr135 each.

Along with the insider buying, another encouraging sign for Teqnion is that insiders, as a group, have a considerable shareholding. Given insiders own a small fortune of shares, currently valued at kr488m, they have plenty of motivation to push the business to succeed. That holding amounts to 25% of the stock on issue, thus making insiders influential, and aligned, owners of the business.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Johan Steene, is paid less than the median for similar sized companies. For companies with market capitalizations between kr974m and kr3.9b, like Teqnion, the median CEO pay is around kr4.2m.

Teqnion offered total compensation worth kr2.7m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Teqnion To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Teqnion's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. So I do think this is one stock worth watching. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Teqnion is trading on a high P/E or a low P/E, relative to its industry.

The good news is that Teqnion is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

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.