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Do Sterling Construction Company's (NASDAQ:STRL) Earnings Warrant Your Attention?

Simply Wall St
·4 min read

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. 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 the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Sterling Construction Company (NASDAQ:STRL). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Sterling Construction Company

How Fast Is Sterling Construction Company Growing Its Earnings Per Share?

In the last three years Sterling Construction Company's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a firecracker arcing through the night sky, Sterling Construction Company's EPS shot from US$0.88 to US$2.12, over the last year. You don't see 140% year-on-year growth like that, very often. The best case scenario? That the business has hit a true inflection point.

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. Sterling Construction Company shareholders can take confidence from the fact that EBIT margins are up from 4.0% to 6.2%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

earnings-and-revenue-history
earnings-and-revenue-history

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Sterling Construction Company?

Are Sterling Construction Company 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Not only did Sterling Construction Company insiders refrain from selling stock during the year, but they also spent US$145k buying it. That's nice to see, because it suggests insiders are optimistic. We also note that it was the Independent Director, Raymond Messer, who made the biggest single acquisition, paying US$98k for shares at about US$8.13 each.

Along with the insider buying, another encouraging sign for Sterling Construction Company is that insiders, as a group, have a considerable shareholding. To be specific, they have US$18m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 2.9% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add Sterling Construction Company To Your Watchlist?

Sterling Construction Company's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest Sterling Construction Company belongs on the top of your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Sterling Construction Company (at least 1 which is a bit concerning) , and understanding these should be part of your investment process.

As a growth investor I do like to see insider buying. But Sterling Construction Company 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.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.