U.S. Markets closed

Is Now The Time To Put Hillgrove Resources (ASX:HGO) On Your Watchlist?

Simply Wall St

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Hillgrove Resources (ASX:HGO). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 Hillgrove Resources

Hillgrove Resources's Improving Profits

Over the last three years, Hillgrove 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. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Hillgrove Resources's EPS shot from AU$0.017 to AU$0.035, over the last year. You don't see 112% year-on-year growth like that, very often.

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. Hillgrove Resources maintained stable EBIT margins over the last year, all while growing revenue 16% to AU$168m. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

ASX:HGO Income Statement, October 23rd 2019

Hillgrove Resources isn't a huge company, given its market capitalization of AU$41m. That makes it extra important to check on its balance sheet strength.

Are Hillgrove Resources Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

First things first; I didn't see insiders sell Hillgrove Resources shares in the last year. But the really good news is that Susan Munro spent AU$591k buying stock stock, at an average price of around AU$0.088. Big buys like that give me a sense of opportunity; actions speak louder than words.

Should You Add Hillgrove Resources To Your Watchlist?

Hillgrove Resources'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. Of course, profit growth is one thing but it's even better if Hillgrove Resources is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Hillgrove Resources, 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 editorial-team@simplywallst.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.