Here's Why I Think Crookes Brothers (JSE:CKS) Might Deserve Your Attention Today

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 Crookes Brothers (JSE:CKS). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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 Crookes Brothers

Crookes Brothers's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. I, for one, am blown away by the fact that Crookes Brothers has grown EPS by 49% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

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. Crookes Brothers's EBIT margins have actually improved by 3.5 percentage points in the last year, to reach 12%, but, on the flip side, revenue was down 11%. That's not ideal.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Crookes Brothers isn't a huge company, given its market capitalization of R661m. That makes it extra important to check on its balance sheet strength.

Are Crookes Brothers Insiders Aligned With All Shareholders?

As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. For companies with market capitalizations under R2.9b, like Crookes Brothers, the median CEO pay is around R4.1m.

The Crookes Brothers CEO received R3.0m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Does Crookes Brothers Deserve A Spot On Your Watchlist?

Crookes Brothers's earnings per share have taken off like a rocket aimed right at the moon. Such fast EPS growth makes me wonder if the business has hit an inflection point (and I mean the good kind.) Meanwhile, the very reasonable CEO pay reassures me a little, since it points to an absence profligacy. So Crookes Brothers looks like it could be a good quality growth stock, at first glance. That's worth watching. You still need to take note of risks, for example - Crookes Brothers has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Although Crookes Brothers certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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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