Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Advance NanoTek (ASX:ANO). 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.
Advance NanoTek's Improving Profits
In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. It is therefore awe-striking that Advance NanoTek's EPS went from AU$0.046 to AU$0.17 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that Advance NanoTek's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Advance NanoTek shareholders can take confidence from the fact that EBIT margins are up from 15% to 25%, and revenue is growing. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
Advance NanoTek isn't a huge company, given its market capitalization of AU$351m. That makes it extra important to check on its balance sheet strength.
Are Advance NanoTek 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. 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.
While Advance NanoTek insiders did net -AU$220.9k selling stock over the last year, they invested AU$897k, a much higher figure. On balance, to me, this signals their optimism. We also note that it was the MD, Company Secretary & Director, Geoffrey Acton, who made the biggest single acquisition, paying AU$270k for shares at about AU$6.00 each.
On top of the insider buying, we can also see that Advance NanoTek insiders own a large chunk of the company. Indeed, with a collective holding of 58%, company insiders are in control and have plenty of capital behind the venture. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have AU$205m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!
Does Advance NanoTek Deserve A Spot On Your Watchlist?
Advance NanoTek's earnings have taken off like any random crypto-currency did, back in 2017. What's more insiders own a significant stake in the company and have been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest Advance NanoTek belongs on the top of your watchlist. Now, you could try to make up your mind on Advance NanoTek by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Advance NanoTek, 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
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.