It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
So if you're like me, you might be more interested in profitable, growing companies, like Crawford (NYSE:CRD.B). 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.
How Fast Is Crawford Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Crawford has grown EPS by 36% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
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. Crawford's EBIT margins are flat but, of some concern, its revenue is actually down. And that does make me a little more cautious of the stock.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Crawford's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Crawford Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Crawford top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the Independent Director, Jesse Crawford, paid US$84k to buy shares at an average price of US$8.41.
Along with the insider buying, another encouraging sign for Crawford is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth US$180m. That equates to 33% of the company, making insiders powerful and aligned with other shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
Should You Add Crawford To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Crawford's strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Crawford is trading on a high P/E or a low P/E, relative to its industry.
The good news is that Crawford 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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