Should You Be Adding WestStar Industrial (ASX:WSI) To Your Watchlist Today?
Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
So if you're like me, you might be more interested in profitable, growing companies, like WestStar Industrial (ASX:WSI). 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
View our latest analysis for WestStar Industrial
WestStar Industrial's Improving Profits
In the last three years WestStar Industrial's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a firecracker arcing through the night sky, WestStar Industrial's EPS shot from AU$0.0019 to AU$0.0046, over the last year. Year on year growth of 142% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.
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. The good news is that WestStar Industrial is growing revenues, and EBIT margins improved by 5.1 percentage points to 5.9%, over the last year. Ticking those two boxes is a good sign of growth, in my book.
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.
Since WestStar Industrial is no giant, with a market capitalization of AU$23m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are WestStar Industrial 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 as you can imagine, the fact that WestStar Industrial insiders own a significant number of shares certainly appeals to me. Actually, with 47% of the company to their names, insiders are profoundly invested in the business. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Of course, WestStar Industrial is a very small company, with a market cap of only AU$23m. So despite a large proportional holding, insiders only have AU$11m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations under AU$271m, like WestStar Industrial, the median CEO pay is around AU$382k.
WestStar Industrial offered total compensation worth AU$201k to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.
Does WestStar Industrial Deserve A Spot On Your Watchlist?
WestStar Industrial's earnings have taken off like any random crypto-currency did, back in 2017. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The strong EPS improvement suggests the businesses is humming along. Big growth can make big winners, so I do think WestStar Industrial is worth considering carefully. However, before you get too excited we've discovered 3 warning signs for WestStar Industrial (1 is a bit unpleasant!) that you should be aware of.
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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
