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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Boise Cascade (NYSE:BCC). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Fast Is Boise Cascade Growing Its Earnings Per Share?
In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Boise Cascade's EPS went from US$2.24 to US$14.77 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that Boise Cascade is growing revenues, and EBIT margins improved by 8.5 percentage points to 12%, over the last year. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Boise Cascade's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Boise Cascade Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Boise Cascade insiders have a significant amount of capital invested in the stock. Indeed, they hold US$23m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 1.1% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Does Boise Cascade Deserve A Spot On Your Watchlist?
Boise Cascade's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it's worth considering Boise Cascade for a spot on your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Boise Cascade (at least 2 which are a bit concerning) , and understanding them should be part of your investment process.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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