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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. 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.
So if you're like me, you might be more interested in profitable, growing companies, like Corridor Resources (TSE:CDH). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.
Corridor Resources's Improving Profits
Over the last three years, Corridor Resources 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. Thus, it makes sense to focus on more recent growth rates, instead. Corridor Resources has grown its trailing twelve month EPS from CA$0.081 to CA$0.084, in the last year. That's a modest gain of 4.1%.
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. Unfortunately, Corridor Resources's revenue dropped 35% last year, but the silver lining is that EBIT margins improved from 23% to 56%. That's not ideal.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
Corridor Resources isn't a huge company, given its market capitalization of CA$65m. That makes it extra important to check on its balance sheet strength.
Are Corridor Resources Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
We do note that Corridor Resources insiders netted -CA$10.2k worth of shares over the last year. But the silver lining to that cloud is that Andrea Creemer, the , spent CA$23k buying shares at an average price of CA$0.74. And that's a reason to be optimistic.
Should You Add Corridor Resources To Your Watchlist?
One important encouraging feature of Corridor Resources is that it is growing profits. While some companies are struggling to grow EPS, Corridor Resources seems free from that morose affliction. The icing on the cake is that an insider bought shares during the year, which inclines me to put this one on a watchlist. Of course, just because Corridor Resources is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
As a growth investor I do like to see insider buying. But Corridor Resources isn't the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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.
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