Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
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. 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 Ultralife (NASDAQ:ULBI). 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. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Fast Is Ultralife Growing Its Earnings Per Share?
Over the last three years, Ultralife has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Ultralife's EPS shot from US$0.52 to US$1.46, over the last year. Year on year growth of 180% is certainly a sight to behold.
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. Unfortunately, revenue is down and so are margins. That will not make it easy to grow profits, to say the least.
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 Ultralife is no giant, with a market capitalization of US$124m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Ultralife 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.
In the last twelve months Ultralife insiders spent US$41k on stock; good news for shareholders. This might not be a huge sum, but it's well worth noting anyway, given the complete lack of selling. It is also worth noting that it was Independent Director Thomas Saeli who made the biggest single purchase, worth US$14k, paying US$7.06 per share.
Does Ultralife Deserve A Spot On Your Watchlist?
Ultralife's earnings per share have taken off like a rocket aimed right at the moon. Growth investors should find it difficult to look past that strong EPS move. And indeed, it could be a sign that the business is at an inflection point. For me, this situation certainly piques my interest. Now, you could try to make up your mind on Ultralife by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Ultralife, 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
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 email@example.com. 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.