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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Bouvet (OB:BOUVET). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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.
Bouvet's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, Bouvet's EPS has grown 34% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
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. Bouvet maintained stable EBIT margins over the last year, all while growing revenue 17% to kr2.1b. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are Bouvet Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, 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.
Bouvet insiders both bought and sold shares over the last twelve months, but they did end up spending kr374k more on stock than they received from selling it. So, on balance, the insider transactions are mildly encouraging. We also note that it was the Chairman, Pål Rønn, who made the biggest single acquisition, paying kr1.1m for shares at about kr222 each.
On top of the insider buying, it's good to see that Bouvet insiders have a valuable investment in the business. With a whopping kr611m worth of shares as a group, insiders have plenty riding on the company's success. That holding amounts to 15% of the stock on issue, thus making insiders influential, and aligned, owners of the business.
Should You Add Bouvet To Your Watchlist?
You can't deny that Bouvet has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. So I do think this is one stock worth watching. Of course, just because Bouvet is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
As a growth investor I do like to see insider buying. But Bouvet 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
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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