We Ran A Stock Scan For Earnings Growth And Proteome Sciences (LON:PRM) Passed With Ease
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 currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Proteome Sciences (LON:PRM). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
Check out our latest analysis for Proteome Sciences
Proteome Sciences' Improving Profits
In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So a growing EPS generally brings attention to a company in the eyes of prospective investors. Commendations have to be given in seeing that Proteome Sciences grew its EPS from UK£0.00024 to UK£0.0045, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
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 Proteome Sciences is growing revenues, and EBIT margins improved by 14.2 percentage points to 22%, over the last year. Both of which are great metrics to check off for potential growth.
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.
Proteome Sciences isn't a huge company, given its market capitalisation of UK£21m. That makes it extra important to check on its balance sheet strength.
Are Proteome Sciences Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.
It's nice to see that there have been no reports of any insiders selling shares in Proteome Sciences in the previous 12 months. So it's definitely nice that company insider Martin Diggle bought UK£12k worth of shares at an average price of around UK£0.04. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Proteome Sciences.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Proteome Sciences insiders own more than a third of the company. Owning 37% of the company, insiders have plenty riding on the performance of the the share price. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. Of course, Proteome Sciences is a very small company, with a market cap of only UK£21m. That means insiders only have UK£7.9m worth of shares, despite the large proportional holding. This isn't an overly large holding but it should still keep the insiders motivated to deliver the best outcomes for shareholders.
Should You Add Proteome Sciences To Your Watchlist?
Proteome Sciences' earnings have taken off in quite an impressive fashion. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Proteome Sciences deserves timely attention. You should always think about risks though. Case in point, we've spotted 4 warning signs for Proteome Sciences you should be aware of, and 3 of them are a bit concerning.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Proteome Sciences, 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.
