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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
So if you're like me, you might be more interested in profitable, growing companies, like Vidler Water Resources (NASDAQ:VWTR). 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 Vidler Water Resources Growing Its Earnings Per Share?
In the last three years Vidler Water Resources'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. Thus, it makes sense to focus on more recent growth rates, instead. Like the last firework on New Year's Eve accelerating into the sky, Vidler Water Resources's EPS shot from US$0.31 to US$0.55, over the last year. You don't see 79% year-on-year growth like that, very often.
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. Not all of Vidler Water Resources's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Unfortunately, revenue is down and so are margins. That is, not a hint of euphemism here, suboptimal.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Vidler Water Resources isn't a huge company, given its market capitalization of US$264m. That makes it extra important to check on its balance sheet strength.
Are Vidler Water Resources 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We haven't seen any insiders selling Vidler Water Resources shares, in the last year. So it's definitely nice that Lead Independent Director Eric Speron bought US$22k worth of shares at an average price of around US$8.68.
It's reassuring that Vidler Water Resources insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. Specifically, the CEO is paid quite reasonably for a company of this size. For companies with market capitalizations between US$100m and US$400m, like Vidler Water Resources, the median CEO pay is around US$1.1m.
The CEO of Vidler Water Resources only received US$418k in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.
Is Vidler Water Resources Worth Keeping An Eye On?
Vidler Water Resources's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Better yet, we can observe insider buying and the chief executive pay looks reasonable. It could be that Vidler Water Resources is at an inflection point, given the EPS growth. If so, then it the potential for further gains probably merit a spot on your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Vidler Water Resources , and understanding it should be part of your investment process.
The good news is that Vidler Water Resources 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.
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