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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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.
So if you're like me, you might be more interested in profitable, growing companies, like Eastern (NASDAQ:EML). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Eastern's Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, Eastern's EPS has grown 33% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While we note Eastern's EBIT margins were flat over the last year, revenue grew by a solid 3.7% to US$236m. That's progress.
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.
Since Eastern is no giant, with a market capitalization of US$157m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Eastern Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Like a sturdy phalanx Eastern insiders have stood united by refusing to sell shares over the last year. But the bigger deal is that the President, August Vlak, paid US$93k to buy shares at an average price of US$26.58.
Should You Add Eastern To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Eastern's strong EPS growth. Not only is that growth rate rather juicy, but the insider buying makes my mouth water. To put it succinctly; Eastern is a strong candidate for your watchlist. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Eastern. You might benefit from giving it a glance today.
The good news is that Eastern is not the only growth stock with insider buying. Here's a 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
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.