Yahoo Finance Here's Why I Think PipeHawk (LON:PIP) Might Deserve Your Attention Today
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in PipeHawk (LON:PIP). 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. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
View our latest analysis for PipeHawk
PipeHawk's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, PipeHawk's EPS has grown 26% 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 see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). PipeHawk shareholders can take confidence from the fact that EBIT margins are up from -12% to 1.9%, and revenue is growing. 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.
PipeHawk isn't a huge company, given its market capitalization of UK£10.0m. That makes it extra important to check on its balance sheet strength.
Are PipeHawk Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So we're pleased to report that PipeHawk insiders own a meaningful share of the business. Indeed, with a collective holding of 57%, company insiders are in control and have plenty of capital behind the venture. This makes me think they will be incentivised to plan for the long term - something I like to see. Valued at only UK£10.0m PipeHawk is really small for a listed company. So despite a large proportional holding, insiders only have UK£5.7m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like PipeHawk with market caps under UK£152m is about UK£239k.
The CEO of PipeHawk only received UK£71k in total compensation for the year ending . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.
Is PipeHawk Worth Keeping An Eye On?
For growth investors like me, PipeHawk's raw rate of earnings growth is a beacon in the night. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. This may only be a fast rundown, but the takeaway for me is that PipeHawk is worth keeping an eye on. Still, you should learn about the 6 warning signs we've spotted with PipeHawk (including 3 which are potentially serious) .
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
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.
