Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like BMC Stock Holdings (NASDAQ:BMCH). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.
BMC Stock Holdings's Improving Profits
In the last three years BMC Stock Holdings's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. BMC Stock Holdings has grown its trailing twelve month EPS from US$1.63 to US$1.76, in the last year. That's a modest gain of 8.3%.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. It seems BMC Stock Holdings is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not a major concern but nor does it point to the long term growth we like to see.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
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 BMC Stock Holdings.
Are BMC Stock Holdings 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Despite -US$56.5k worth of sales, BMC Stock Holdings insiders have overwhelmingly been buying the stock, spending US$363k on purchases in the last twelve months. You could argue that level of buying implies genuine confidence in the business. Zooming in, we can see that the biggest insider purchase was by CEO, President & Director David Flitman for US$202k worth of shares, at about US$22.49 per share.
The good news, alongside the insider buying, for BMC Stock Holdings bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$25m worth of its stock. That's a lot of money, and no small incentive to work hard. Even though that's only about 1.4% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Should You Add BMC Stock Holdings To Your Watchlist?
As I already mentioned, BMC Stock Holdings is a growing business, which is what I like to see. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Of course, just because BMC Stock Holdings is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of BMC Stock Holdings, 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
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