Here's Why We Think Maxim Power (TSE:MXG) Is Well Worth Watching
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 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 Maxim Power (TSE:MXG), 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. 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.
See our latest analysis for Maxim Power
Maxim Power's Improving Profits
In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. It is therefore awe-striking that Maxim Power's EPS went from CA$0.19 to CA$1.57 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. Could this be a sign that the business has reached an inflection point?
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. The good news is that Maxim Power is growing revenues, and EBIT margins improved by 36.1 percentage points to 40%, over the last year. Ticking those two boxes is a good sign of growth, in my book.
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.
Since Maxim Power is no giant, with a market capitalization of CA$183m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Maxim Power 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
One shining light for Maxim Power is the serious outlay one insider has made to buy shares, in the last year. In one fell swoop, Independent Vice Chairman W. Wilson, spent CA$2.4m, at a price of CA$3.20 per share. It doesn't get much better than that, in terms of large investments from insiders.
On top of the insider buying, we can also see that Maxim Power insiders own a large chunk of the company. Actually, with 38% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. With that sort of holding, insiders have about CA$69m riding on the stock, at current prices. That's nothing to sneeze at!
Does Maxim Power Deserve A Spot On Your Watchlist?
Maxim Power's earnings have taken off like any random crypto-currency did, back in 2017. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest Maxim Power belongs on the top of your watchlist. Still, you should learn about the 1 warning sign we've spotted with Maxim Power .
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Maxim Power, 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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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.
