It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
In contrast to all that, I prefer to spend time on companies like Cowen (NASDAQ:COWN), which has not only revenues, but also profits. 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.
How Fast Is Cowen Growing Its Earnings Per Share?
In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that Cowen grew its EPS from US$0.60 to US$4.33, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?
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. Not all of Cowen'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. While we note Cowen's EBIT margins were flat over the last year, revenue grew by a solid 41% to US$1.2b. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Cowen's forecast profits?
Are Cowen 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, small purchases are not always indicative of conviction, and insiders don't always get it right.
While Cowen insiders did net -US$221k selling stock over the last year, they invested US$576k, a much higher figure. On balance, to me, this signals their optimism. We also note that it was the Independent Director, Brett Barth, who made the biggest single acquisition, paying US$121k for shares at about US$12.13 each.
The good news, alongside the insider buying, for Cowen bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$37m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 5.0% of the company, demonstrating a degree of high-level alignment with shareholders.
Should You Add Cowen To Your Watchlist?
Cowen's earnings have taken off like any random crypto-currency did, back in 2017. What's more insiders own a significant stake in the company and have been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest Cowen belongs on the top of your watchlist. Don't forget that there may still be risks. For instance, we've identified 5 warning signs for Cowen (2 are a bit unpleasant) you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Cowen, you'll probably love this free list of growing companies that insiders are buying.
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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