Stock Analysis

Here's Why CSP (NASDAQ:CSPI) Has Caught The Eye Of Investors

NasdaqGM:CSPI
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The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like CSP (NASDAQ:CSPI), which has not only revenues, but also profits. 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.

View our latest analysis for CSP

CSP's Improving Profits

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. Which is why EPS growth is looked upon so favourably. It is awe-striking that CSP's EPS went from US$0.18 to US$1.04 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. This could point to the business hitting a point of inflection.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. CSP shareholders can take confidence from the fact that EBIT margins are up from -1.6% to 3.8%, and revenue is growing. That's great to see, on both counts.

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.

earnings-and-revenue-history
NasdaqGM:CSPI Earnings and Revenue History September 18th 2023

Since CSP is no giant, with a market capitalisation of US$104m, you should definitely check its cash and debt before getting too excited about its prospects.

Are CSP Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We did see some selling in the last twelve months, but that's insignificant compared to the whopping US$1.3m that the company insider, Joseph Nerges spent acquiring shares. The average price paid was about US$12.30. Insider buying like this is a rare occurrence and should stoke the interest of the market and shareholders alike.

Along with the insider buying, another encouraging sign for CSP is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at US$30m. This considerable investment should help drive long-term value in the business. That amounts to 29% of the company, demonstrating a degree of high-level alignment with shareholders.

Should You Add CSP To Your Watchlist?

CSP's earnings have taken off in quite an impressive fashion. The cherry on top is that insiders own a bunch of shares, and one has been buying more. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest CSP belongs near the top of your watchlist. Before you take the next step you should know about the 2 warning signs for CSP (1 makes us a bit uncomfortable!) that we have uncovered.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of CSP, 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.

Valuation is complex, but we're helping make it simple.

Find out whether CSP is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.