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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in BQE Water (CVE:BQE). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
How Fast Is BQE Water Growing Its Earnings Per Share?
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. Commendations have to be given in seeing that BQE Water grew its EPS from CA$0.54 to CA$2.68, in one short year. Even though that growth rate may not be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
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. BQE Water shareholders can take confidence from the fact that EBIT margins are up from -5.4% to 3.4%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.
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.
Since BQE Water is no giant, with a market capitalisation of CA$36m, you should definitely check its cash and debt before getting too excited about its prospects.
Are BQE Water 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Despite some BQE Water insiders disposing of some shares, we note that there was CA$215k more in buying interest among those who know the company best On balance, that's a good sign. Zooming in, we can see that the biggest insider purchase was by company insider Hall Tingley for CA$23k worth of shares, at about CA$29.30 per share.
On top of the insider buying, we can also see that BQE Water insiders own a large chunk of the company. To be exact, company insiders hold 55% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. In terms of absolute value, insiders have CA$20m invested in the business, at the current share price. That's nothing to sneeze at!
Does BQE Water Deserve A Spot On Your Watchlist?
BQE Water's earnings per share have been soaring, with growth rates sky high. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest BQE Water belongs near the top of your watchlist. However, before you get too excited we've discovered 3 warning signs for BQE Water (1 shouldn't be ignored!) that you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of BQE Water, 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.
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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.