Here's Why I Think Seamless Distribution Systems (STO:SDS) Is An Interesting Stock

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Seamless Distribution Systems (STO:SDS). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Seamless Distribution Systems

How Quickly Is Seamless Distribution Systems Increasing Earnings Per Share?

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). That makes EPS growth an attractive quality for any company. Seamless Distribution Systems managed to grow EPS by 7.5% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. The good news is that Seamless Distribution Systems is growing revenues, and EBIT margins improved by 7.5 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. Click on the chart to see the exact numbers.

Seamless Distribution Systems isn't a huge company, given its market capitalization of kr431m. That makes it extra important to check on its balance sheet strength.

Are Seamless Distribution Systems Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

One positive for Seamless Distribution Systems, is that company insiders paid kr346k for shares in the last year. While this isn't much, we also note an absence of sales. We also note that it was the Chief Executive Officer, Tommy Eriksson, who made the biggest single acquisition, paying kr311k for shares at about kr30.30 each.

Along with the insider buying, another encouraging sign for Seamless Distribution Systems is that insiders, as a group, have a considerable shareholding. Indeed, they hold kr107m worth of its stock. That's a lot of money, and no small incentive to work hard. Those holdings account for over 25% of the company; visible skin in the game.

Is Seamless Distribution Systems Worth Keeping An Eye On?

As I already mentioned, Seamless Distribution Systems is a growing business, which is what I like to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. It's still necessary to consider the ever-present spectre of investment risk. We've identified 6 warning signs with Seamless Distribution Systems (at least 2 which are a bit unpleasant) , and understanding them should be part of your investment process.

The good news is that Seamless Distribution Systems 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. 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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