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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Tribune Resources (ASX:TBR). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
Tribune Resources's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years Tribune Resources grew its EPS by 8.8% per year. That's a good rate of growth, if it can be sustained.
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. The good news is that Tribune Resources is growing revenues, and EBIT margins improved by 7.4 percentage points to 43%, over the last year. 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.
Tribune Resources isn't a huge company, given its market capitalization of AU$257m. That makes it extra important to check on its balance sheet strength.
Are Tribune Resources Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.
The first bit of good news is that no Tribune Resources insiders reported share sales in the last twelve months. But the really good news is that CEO, MD & Executive Director Anthony Billis spent AU$332k buying stock stock, at an average price of around AU$5.53. To me that means at least one insider thinks that the company is doing well - and they are backing that view with cash.
Along with the insider buying, another encouraging sign for Tribune Resources is that insiders, as a group, have a considerable shareholding. Given insiders own a small fortune of shares, currently valued at AU$89m, they have plenty of motivation to push the business to succeed. That holding amounts to 35% of the stock on issue, thus making insiders influential, and aligned, owners of the business.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Anton Billis, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Tribune Resources with market caps between AU$129m and AU$515m is about AU$655k.
Tribune Resources offered total compensation worth AU$482k to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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 a culture of integrity, in a broader sense.
Is Tribune Resources Worth Keeping An Eye On?
One important encouraging feature of Tribune Resources is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Still, you should learn about the 2 warning signs we've spotted with Tribune Resources .
The good news is that Tribune Resources is not the only growth stock with insider buying. Here's a list of them... 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.
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.
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