Does P.A.M. Transportation Services (NASDAQ:PTSI) Deserve A Spot On Your Watchlist?

By
Simply Wall St
Published
February 23, 2022
NasdaqGM:PTSI
Source: Shutterstock

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.'

So if you're like me, you might be more interested in profitable, growing companies, like P.A.M. Transportation Services (NASDAQ:PTSI). 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 P.A.M. Transportation Services

How Fast Is P.A.M. Transportation Services Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. I, for one, am blown away by the fact that P.A.M. Transportation Services has grown EPS by 51% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that P.A.M. Transportation Services's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. P.A.M. Transportation Services shareholders can take confidence from the fact that EBIT margins are up from 7.0% to 14%, 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. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGM:PTSI Earnings and Revenue History February 23rd 2022

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check P.A.M. Transportation Services's balance sheet strength, before getting too excited.

Are P.A.M. Transportation Services 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. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The first bit of good news is that no P.A.M. Transportation Services insiders reported share sales in the last twelve months. But the really good news is that Independent Director W. Davis spent US$242k buying stock stock, at an average price of around US$30.22. Big buys like that give me a sense of opportunity; actions speak louder than words.

On top of the insider buying, we can also see that P.A.M. Transportation Services insiders own a large chunk of the company. Indeed, with a collective holding of 71%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. At the current share price, that insider holding is worth a whopping US$530m. Now that's what I call some serious skin in the game!

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Joseph Vitiritto is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$400m and US$1.6b, like P.A.M. Transportation Services, the median CEO pay is around US$2.4m.

The P.A.M. Transportation Services CEO received US$1.9m in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. I'd also argue reasonable pay levels attest to good decision making more generally.

Does P.A.M. Transportation Services Deserve A Spot On Your Watchlist?

P.A.M. Transportation Services's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest P.A.M. Transportation Services belongs on the top of your watchlist. What about risks? Every company has them, and we've spotted 1 warning sign for P.A.M. Transportation Services you should know about.

The good news is that P.A.M. Transportation Services 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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