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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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In contrast to all that, I prefer to spend time on companies like StealthGas (NASDAQ:GASS), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
StealthGas'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. You can imagine, then, that it almost knocked my socks off when I realized that StealthGas grew its EPS from US$0.079 to US$0.26, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company.
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. StealthGas maintained stable EBIT margins over the last year, all while growing revenue 5.6% to US$148m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Since StealthGas is no giant, with a market capitalization of US$100m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are StealthGas 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, small purchases are not always indicative of conviction, and insiders don't always get it right.
First things first; I didn't see insiders sell StealthGas shares in the last year. Even better, though, is that the President, Harry Vafias, bought a whopping US$645k worth of shares, paying about US$2.75 per share, on average. To me that means at least one insider thinks that the company is doing well - and they are backing that view with cash.
On top of the insider buying, it's good to see that StealthGas insiders have a valuable investment in the business. To be specific, they have US$22m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 22% of the company; visible skin in the game.
Is StealthGas Worth Keeping An Eye On?
StealthGas's earnings have taken off like any random crypto-currency did, back in 2017. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe StealthGas deserves timely attention. We don't want to rain on the parade too much, but we did also find 2 warning signs for StealthGas (1 shouldn't be ignored!) that you need to be mindful of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of StealthGas, 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.
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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