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 currently lacks a track record of revenue and profit. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Inventronics (CVE:IVX). 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 Inventronics
How Quickly Is Inventronics Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. To the delight of shareholders, Inventronics has achieved impressive annual EPS growth of 54%, compound, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.
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. The music to the ears of Inventronics shareholders is that EBIT margins have grown from 14% to 21% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Since Inventronics is no giant, with a market capitalisation of CA$16m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Inventronics 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We do note that, in the last year, insiders sold CA$77k worth of shares. But that's far less than the CA$7.0m insiders spent purchasing stock. This bodes well for Inventronics as it highlights the fact that those who are important to the company having a lot of faith in its future. We also note that it was the President, Dan Stearne, who made the biggest single acquisition, paying CA$2.3m for shares at about CA$2.70 each.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Inventronics insiders own more than a third of the company. To be exact, company insiders hold 54% of the company, so their decisions have a significant impact on their investments. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Of course, Inventronics is a very small company, with a market cap of only CA$16m. So despite a large proportional holding, insiders only have CA$8.9m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because Inventronics' CEO, Dan Stearne, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Inventronics with market caps under CA$266m is about CA$233k.
Inventronics offered total compensation worth CA$183k to its CEO in the year to December 2021. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does Inventronics Deserve A Spot On Your Watchlist?
Inventronics' 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 Inventronics deserves timely attention. You should always think about risks though. Case in point, we've spotted 2 warning signs for Inventronics you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Inventronics, 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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