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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. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
In contrast to all that, I prefer to spend time on companies like North American Construction Group (TSE:NOA), 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.
North American Construction Group's Improving Profits
Over the last three years, North American Construction Group 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, North American Construction Group's EPS shot from CA$0.26 to CA$0.45, over the last year. Year on year growth of 74% is certainly a sight to behold.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. North American Construction Group maintained stable EBIT margins over the last year, all while growing revenue 53% to CA$482m. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for North American Construction Group's future profits.
Are North American Construction Group Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
For the sake of balance, I do note North American Construction Group insiders sold -CA$115.9k worth of shares last year. But this is outweighed by the Chairman & CEO Martin Ferron who spent CA$202k buying shares, at an average price of around around CA$13.50.
Along with the insider buying, another encouraging sign for North American Construction Group is that insiders, as a group, have a considerable shareholding. Indeed, they hold CA$34m worth of its stock. That's a lot of money, and no small incentive to work hard. Those holdings account for over 9.8% of the company; visible skin in the game.
Does North American Construction Group Deserve A Spot On Your Watchlist?
North American Construction Group's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Growth investors should find it difficult to look past that strong EPS move. And in fact, it could well signal a fundamental shift in the business economics. If that's the case, you may regret neglecting to put North American Construction Group on your watchlist. Now, you could try to make up your mind on North American Construction Group by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
The good news is that North American Construction Group 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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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.