If EPS Growth Is Important To You, BlackLine (NASDAQ:BL) Presents An Opportunity

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like BlackLine (NASDAQ:BL). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for BlackLine

BlackLine's Improving Profits

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It's an outstanding feat for BlackLine to have grown EPS from US$0.17 to US$1.95 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future.

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. BlackLine shareholders can take confidence from the fact that EBIT margins are up from -7.9% to 2.6%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

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 BlackLine's forecast profits?

Are BlackLine Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.

BlackLine insiders both bought and sold shares over the last twelve months, but they did end up spending US$45k more on stock than they received from selling it. So, on balance, the insider transactions are mildly encouraging. We also note that it was the Co-CEO & Chairman of the Board, Owen Ryan, who made the biggest single acquisition, paying US$348k for shares at about US$46.11 each.

On top of the insider buying, it's good to see that BlackLine insiders have a valuable investment in the business. Notably, they have an enviable stake in the company, worth US$260m. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.

Does BlackLine Deserve A Spot On Your Watchlist?

BlackLine's earnings per share have been soaring, with growth rates sky high. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe BlackLine deserves timely attention. Even so, be aware that BlackLine is showing 3 warning signs in our investment analysis , and 1 of those is significant...

Keen growth investors love to see insider activity. Thankfully, BlackLine isn't the only one. You can see a a curated list of companies which have exhibited consistent growth accompanied by high insider ownership.

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.