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With EPS Growth And More, Western Areas (ASX:WSA) Is Interesting

Simply Wall St

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In contrast to all that, I prefer to spend time on companies like Western Areas (ASX:WSA), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. 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.

View our latest analysis for Western Areas

Western Areas's Improving Profits

Over the last three years, Western Areas 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. Thus, it makes sense to focus on more recent growth rates, instead. Western Areas boosted its trailing twelve month EPS from AU$0.043 to AU$0.052, in the last year. I doubt many would complain about that 20% gain.

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. On the one hand, Western Areas's EBIT margins fell over the last year, but on the other hand, revenue grew. 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:WSA Income Statement, November 8th 2019

Fortunately, we've got access to analyst forecasts of Western Areas's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Western Areas 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.

We haven't seen any insiders selling Western Areas shares, in the last year. With that in mind, it's heartening that Natalia Streltsova, the Independent Non-Executive Director of the company, paid AU$14k for shares at around AU$2.16 each.

Does Western Areas Deserve A Spot On Your Watchlist?

One important encouraging feature of Western Areas is that it is growing profits. Not every business can grow its EPS, but Western Areas certainly can. The cherry on top is that we have an insider buying shares. That encourages me further to keep an eye on this stock. Another important measure of business quality not discussed here, is return on equity (ROE). Click on this link to see how Western Areas shapes up to industry peers, when it comes to ROE.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Western Areas, 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

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.

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. Thank you for reading.