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 contrast to all that, I prefer to spend time on companies like Canaccord Genuity Group (TSE:CF), which has not only revenues, but also profits. 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. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Canaccord Genuity Group's Improving Profits
In the last three years Canaccord Genuity Group'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. Like the last firework on New Year's Eve accelerating into the sky, Canaccord Genuity Group's EPS shot from CA$0.25 to CA$0.64, over the last year. You don't see 154% year-on-year growth like that, very often.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that Canaccord Genuity Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Canaccord Genuity Group's EBIT margins were flat over the last year, revenue grew by a solid 13% to CA$1.2b. That's progress.
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.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Canaccord Genuity Group EPS 100% free.
Are Canaccord Genuity Group Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
We do note that, in the last year, insiders sold -CA$332.0k worth of shares. But that's far less than the CA$2.9m insiders spend purchasing stock. I find this encouraging because it suggests they are optimistic about the Canaccord Genuity Group's future. Zooming in, we can see that the biggest insider purchase was by Executive VP Stuart Raftus for CA$2.0m worth of shares, at about CA$6.51 per share.
On top of the insider buying, it's good to see that Canaccord Genuity Group insiders have a valuable investment in the business. Indeed, they hold CA$64m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 13% of the company, demonstrating a degree of high-level alignment with shareholders.
Is Canaccord Genuity Group Worth Keeping An Eye On?
Canaccord Genuity Group's earnings have taken off like any random crypto-currency did, back in 2017. What's more insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Canaccord Genuity Group deserves timely attention. Of course, just because Canaccord Genuity Group 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 Canaccord Genuity Group, 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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