Should You Be Adding H2O Innovation (TSE:HEO) To Your Watchlist Today?
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 H2O Innovation (TSE:HEO). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide H2O Innovation with the means to add long-term value to shareholders.
View our latest analysis for H2O Innovation
How Fast Is H2O Innovation Growing Its Earnings Per Share?
In the last three years H2O Innovation's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. H2O Innovation's EPS shot up from CA$0.029 to CA$0.038; a result that's bound to keep shareholders happy. That's a commendable gain of 30%.
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. While we note H2O Innovation achieved similar EBIT margins to last year, revenue grew by a solid 44% to CA$240m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for H2O Innovation's future EPS 100% free.
Are H2O Innovation 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
One positive for H2O Innovation, is that company insiders spent CA$29k acquiring shares in the last year. While this isn't much, we also note an absence of sales.
Recent insider purchases of H2O Innovation stock is not the only way management has kept the interests of the general public shareholders in mind. Specifically, the CEO is paid quite reasonably for a company of this size. For companies with market capitalisations between CA$135m and CA$540m, like H2O Innovation, the median CEO pay is around CA$1.0m.
The H2O Innovation CEO received CA$637k in compensation for the year ending June 2022. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Does H2O Innovation Deserve A Spot On Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into H2O Innovation's strong EPS growth. And that's not the only positive either. We have both insider buying and reasonable and remuneration to consider. The overriding message from this quick rundown is yes, this stock is worth investigating further. Even so, be aware that H2O Innovation is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...
Keen growth investors love to see insider buying. Thankfully, H2O Innovation 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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