Does Iofina (LON:IOF) Deserve A Spot On Your Watchlist?
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. 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.
In contrast to all that, I prefer to spend time on companies like Iofina (LON:IOF), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Check out our latest analysis for Iofina
Iofina's Improving Profits
Over the last three years, Iofina has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. Thus, it makes sense to focus on more recent growth rates, instead. Like a falcon taking flight, Iofina's EPS soared from US$0.011 to US$0.018, over the last year. That's a impressive gain of 59%.
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. While Iofina did well to grow revenue over the last year, EBIT margins were dampened at the same time. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Iofina isn't a huge company, given its market capitalization of UK£30m. That makes it extra important to check on its balance sheet strength.
Are Iofina Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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.
We note that Iofina insiders spent US$49k on stock, over the last year; in contrast, we didn't see any selling. That puts the company in a nice light, as it makes me think its leaders are feeling confident. We also note that it was the Non-Executive Chairman, Lance Baller, who made the biggest single acquisition, paying UK£25k for shares at about UK£0.13 each.
I do like that insiders have been buying shares in Iofina, but there is more evidence of shareholder friendly management. I refer to the very reasonable level of CEO pay. I discovered that the median total compensation for the CEOs of companies like Iofina with market caps under US$200m is about US$321k.
Iofina offered total compensation worth US$286k to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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. I'd also argue reasonable pay levels attest to good decision making more generally.
Is Iofina Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Iofina's strong EPS growth. But wait, it gets better. We have seen insider buying and the executive pay seems on the modest side of things. On balance the message seems to be that this stock is worth looking at, at least for a while. Even so, be aware that Iofina is showing 2 warning signs in our investment analysis , you should know about...
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Iofina, you'll probably love this free list of growing companies that insiders are buying.
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. 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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