Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
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 Pan African Resources (LON:PAF). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Pan African Resources' Improving Profits
Over the last three years, Pan African Resources has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. It's good to see that Pan African Resources' EPS has grown from US$0.033 to US$0.041 over twelve months. This amounts to a 24% gain; a figure that shareholders will be pleased to see.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. EBIT margins for Pan African Resources remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 17% to US$379m. That's encouraging news for the company!
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Pan African Resources?
Are Pan African Resources Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, 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.
Not only did Pan African Resources insiders refrain from selling stock during the year, but they also spent US$96k buying it. This is a good look for the company as it paints an optimistic picture for the future. It is also worth noting that it was CEO & Executive Director Jacobus Albertus Loots who made the biggest single purchase, worth UK£51k, paying UK£0.17 per share.
It's commendable to see that insiders have been buying shares in Pan African Resources, but there is more evidence of shareholder friendly management. Namely, Pan African Resources has a very reasonable level of CEO pay. For companies with market capitalisations between US$200m and US$800m, like Pan African Resources, the median CEO pay is around US$1.0m.
The Pan African Resources CEO received US$812k in compensation for the year ending June 2021. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Does Pan African Resources Deserve A Spot On Your Watchlist?
As previously touched on, Pan African Resources is a growing business, which is encouraging. And that's not all. We've also seen insiders buying stock, and noted modest executive pay. The sum of all that, points to a quality business, and a genuine prospect for further research. You should always think about risks though. Case in point, we've spotted 2 warning signs for Pan African Resources you should be aware of.
Keen growth investors love to see insider buying. Thankfully, Pan African Resources isn't the only one. You can see a a free list of them here.
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.
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