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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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 Catalyst Pharmaceuticals (NASDAQ:CPRX). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Catalyst Pharmaceuticals's Improving Profits
Over the last three years, Catalyst Pharmaceuticals 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. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Catalyst Pharmaceuticals's EPS shot from US$0.31 to US$0.72, over the last year. You don't see 133% year-on-year growth like that, very often.
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. Catalyst Pharmaceuticals shareholders can take confidence from the fact that EBIT margins are up from 31% to 35%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
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.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Catalyst Pharmaceuticals.
Are Catalyst Pharmaceuticals Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
We note that Catalyst Pharmaceuticals insiders spent US$65k on stock, over the last year; in contrast, we didn't see any selling. That's nice to see, because it suggests insiders are optimistic.
Along with the insider buying, another encouraging sign for Catalyst Pharmaceuticals is that insiders, as a group, have a considerable shareholding. To be specific, they have US$32m worth of shares. That's a lot of money, and no small incentive to work hard. That amounts to 7.0% of the company, demonstrating a degree of high-level alignment with shareholders.
Does Catalyst Pharmaceuticals Deserve A Spot On Your Watchlist?
Catalyst Pharmaceuticals's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Catalyst Pharmaceuticals deserves timely attention. Even so, be aware that Catalyst Pharmaceuticals is showing 1 warning sign in our investment analysis , you should know about...
As a growth investor I do like to see insider buying. But Catalyst Pharmaceuticals 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.
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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