If You Like EPS Growth Then Check Out Cyanotech (NASDAQ:CYAN) Before It's Too Late
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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Cyanotech (NASDAQ:CYAN). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
View our latest analysis for Cyanotech
Cyanotech's Improving Profits
Over the last three years, Cyanotech 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 falcon taking flight, Cyanotech's EPS soared from US$0.21 to US$0.27, over the last year. That's a commendable gain of 32%.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The good news is that Cyanotech is growing revenues, and EBIT margins improved by 5.1 percentage points to 6.2%, over the last year. 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.
Since Cyanotech is no giant, with a market capitalization of US$21m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Cyanotech Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.
Cyanotech top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the Independent Chairman of the Board, Michael Davis, paid US$126k to buy shares at an average price of US$3.51.
I do like that insiders have been buying shares in Cyanotech, but there is more evidence of shareholder friendly management. Specifically, the CEO is paid quite reasonably for a company of this size. I discovered that the median total compensation for the CEOs of companies like Cyanotech with market caps under US$200m is about US$600k.
The Cyanotech CEO received total compensation of just US$124k in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Is Cyanotech Worth Keeping An Eye On?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Cyanotech's strong EPS growth. But wait, it gets better. We have seen insider buying and the executive pay seems on the modest side of things. The message I'd take from this quick rundown is that, yes, this stock is worth investigating further. You should always think about risks though. Case in point, we've spotted 1 warning sign for Cyanotech you should be aware of.
The good news is that Cyanotech is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
