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With EPS Growth And More, Byron Energy (ASX:BYE) Is Interesting

Simply Wall St

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Byron Energy (ASX:BYE). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Byron Energy

Byron Energy's Improving Profits

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Byron Energy's EPS went from US$0.0022 to US$0.0083 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.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While Byron Energy did well to grow revenue over the last year, EBIT margins were dampened at the same time. So it seems the future my hold further growth, especially if EBIT margins can stabilize.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

ASX:BYE Income Statement, January 1st 2020

Since Byron Energy is no giant, with a market capitalization of AU$240m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Byron Energy Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The first bit of good news is that no Byron Energy insiders reported share sales in the last twelve months. But the really good news is that Non-Executive Director Paul Young spent US$401k buying stock stock, at an average price of around US$0.31. Big buys like that give me a sense of opportunity; actions speak louder than words.

On top of the insider buying, it's good to see that Byron Energy insiders have a valuable investment in the business. To be specific, they have US$41m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 17% of the company, demonstrating a degree of high-level alignment with shareholders.

Is Byron Energy Worth Keeping An Eye On?

Byron Energy's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest Byron Energy belongs on the top of your watchlist. 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 Byron Energy 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 Byron Energy 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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.