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.
In contrast to all that, I prefer to spend time on companies like Canterbury Park Holding (NASDAQ:CPHC), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Canterbury Park Holding's Improving Profits
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So EPS growth can certainly encourage an investor to take note of a stock. Canterbury Park Holding has grown its trailing twelve month EPS from US$1.03 to US$1.10, in the last year. That amounts to a small improvement of 6.9%.
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. Not all of Canterbury Park Holding's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. It seems Canterbury Park Holding is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not bad, but it doesn't point to ongoing future growth, either.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Since Canterbury Park Holding is no giant, with a market capitalization of US$57m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Canterbury Park Holding Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Over the last 12 months Canterbury Park Holding insiders spent US$70k more buying shares than they received from selling them. Although I don't particularly like to see selling, the fact that they put more capital in, than they extracted, is a positive in my mind. We also note that it was the Co-Founder & Vice Chairman, Dale Schenian, who made the biggest single acquisition, paying US$44k for shares at about US$12.96 each.
On top of the insider buying, we can also see that Canterbury Park Holding insiders own a large chunk of the company. Actually, with 38% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. With that sort of holding, insiders have about US$22m riding on the stock, at current prices. That's nothing to sneeze at!
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Randy Sampson is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations under US$200m, like Canterbury Park Holding, the median CEO pay is around US$498k.
Canterbury Park Holding offered total compensation worth US$349k to its CEO in the year to December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. 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. It can also be a sign of good governance, more generally.
Does Canterbury Park Holding Deserve A Spot On Your Watchlist?
One positive for Canterbury Park Holding is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Canterbury Park Holding is trading on a high P/E or a low P/E, relative to its industry.
As a growth investor I do like to see insider buying. But Canterbury Park Holding 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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