U.S. markets open in 3 hours 18 minutes
  • S&P Futures

    4,283.50
    -24.25 (-0.56%)
     
  • Dow Futures

    33,985.00
    -133.00 (-0.39%)
     
  • Nasdaq Futures

    13,561.75
    -96.50 (-0.71%)
     
  • Russell 2000 Futures

    2,011.40
    -11.90 (-0.59%)
     
  • Crude Oil

    86.96
    +0.43 (+0.50%)
     
  • Gold

    1,787.80
    -1.90 (-0.11%)
     
  • Silver

    19.89
    -0.19 (-0.97%)
     
  • EUR/USD

    1.0181
    +0.0010 (+0.10%)
     
  • 10-Yr Bond

    2.8240
    0.0000 (0.00%)
     
  • Vix

    20.13
    +0.18 (+0.90%)
     
  • GBP/USD

    1.2106
    +0.0012 (+0.10%)
     
  • USD/JPY

    134.8490
    +0.6340 (+0.47%)
     
  • BTC-USD

    23,825.11
    -273.47 (-1.13%)
     
  • CMC Crypto 200

    568.26
    -3.66 (-0.64%)
     
  • FTSE 100

    7,515.34
    -20.72 (-0.27%)
     
  • Nikkei 225

    29,222.77
    +353.86 (+1.23%)
     

If EPS Growth Is Important To You, Paramount Resources (TSE:POU) Presents An Opportunity

  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like Paramount Resources (TSE:POU), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for Paramount Resources

How Fast Is Paramount Resources Growing Its Earnings Per Share?

Paramount Resources has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. Impressively, Paramount Resources' EPS catapulted from CA$0.98 to CA$2.37, over the last year. Year on year growth of 143% is certainly a sight to behold. Shareholders will be hopeful that this is a sign of the company reaching an 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 music to the ears of Paramount Resources shareholders is that EBIT margins have grown from 7.9% to 33% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
earnings-and-revenue-history

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Paramount Resources' balance sheet strength, before getting too excited.

Are Paramount Resources Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Paramount Resources shares worth a considerable sum. As a matter of fact, their holding is valued at CA$44m. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 1.0%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Our quick analysis into CEO remuneration would seem to indicate they are. For companies with market capitalisations between CA$2.6b and CA$8.2b, like Paramount Resources, the median CEO pay is around CA$4.6m.

The Paramount Resources CEO received total compensation of just CA$2.2m in the year to December 2021. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Paramount Resources To Your Watchlist?

Paramount Resources' earnings have taken off in quite an impressive fashion. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Paramount Resources certainly ticks a few boxes, so we think it's probably well worth further consideration. It's still necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Paramount Resources (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

Although Paramount Resources certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.