Here's Why We Think Aris Water Solutions (NYSE:ARIS) Is Well Worth Watching
The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Aris Water Solutions (NYSE:ARIS). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
See our latest analysis for Aris Water Solutions
How Fast Is Aris Water Solutions Growing Its Earnings Per Share?
Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. Which is why EPS growth is looked upon so favourably. It's an outstanding feat for Aris Water Solutions to have grown EPS from US$0.042 to US$0.59 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. EBIT margins for Aris Water Solutions remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 22% to US$392m. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Aris Water Solutions' future profits.
Are Aris Water Solutions Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
The good news for Aris Water Solutions shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that Jacinto Hernandez, the Independent Director of the company, paid US$20k for shares at around US$7.42 each. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Aris Water Solutions.
The good news, alongside the insider buying, for Aris Water Solutions bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$14m worth of shares. This considerable investment should help drive long-term value in the business. Despite being just 1.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Should You Add Aris Water Solutions To Your Watchlist?
Aris Water Solutions' earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bunch of shares, and one has been buying more. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Aris Water Solutions belongs near the top of your watchlist. You should always think about risks though. Case in point, we've spotted 2 warning signs for Aris Water Solutions you should be aware of, and 1 of them is potentially serious.
The good news is that Aris Water Solutions is not the only growth stock with insider buying. Here's a list of growth-focused companies in the US 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
