For starters, it might seem like a good idea (and an exciting prospect) to buy a company that tells investors a good story, even if it completely lacks a track record of revenue and earnings. But the reality is that when a company loses money every year, for long enough, its investors will usually take their share of those losses.
So if you’re like me, you might be more interested in profitable and growing companies, like Cryositis (ASX: ETC). Although profit is not necessarily a social good, it is easy to admire a company that can produce it consistently. Loss-making businesses are always in a race against time to achieve financial viability, but time is often the friend of a profitable business, especially if it is growing.
Check out our latest analysis for Cryosite
Cryosite’s earnings per share increase.
The market is a short-term voting machine, but a long-term weighing machine, so stock price eventually follows earnings per share (EPS). So it’s no surprise that I like investing in EPS growth companies. For my part, I am blown away by the fact that Cryosite has increased EPS by 44% per year, over the last three years. Such rapid growth may well be fleeting, but like a lotus blooming from a murky pond, it brings joy to wary stock pickers.
I like to take a look at earnings before interest and tax margins (EBIT), as well as revenue growth, to get another view of the quality of the company’s growth. Cryosite shareholders can take comfort in the fact that EBIT margins have fallen from 8.7% to 14% and revenues are growing. It’s great to see, on both counts.
In the table below, you can see how the company has increased its profits and revenue over time. For more details, click on the image.
Cryosite isn’t a big company, given its market capitalization of AU$32 million. It is therefore very important to check the strength of its balance sheet.
Are Cryosite insiders aligned with all shareholders?
Like standing on the lookout, surveying the horizon at sunrise, insider buying, for some investors, brings joy. Because often buying stocks is a sign that the buyer considers them undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
A bright light for Cryosite is an insider’s significant outlay to buy stock, over the past year. Specifically, in a large transaction, non-executive director Andrew Kroger paid A$671,000, for shares at A$0.43 per share. It doesn’t get much better than that, in terms of heavy investment from insiders.
And insider buying isn’t the only sign of alignment between shareholders and the board, as Cryosite insiders own more than a third of the company. In fact, with 50% of the company in their name, insiders are deeply invested in the company. I take comfort in this type of alignment, as it suggests that the company will be run for the benefit of shareholders. Valued at just AU$32 million, Cryosite is really small for a publicly listed company. That means insiders only have A$16 million worth of shares, despite the large proportional stake. It’s not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.
While insiders already own a significant number of shares and are buying more, the good news for common stockholders doesn’t end there. Indeed, according to our analysis, CEO John Hogg is paid less than the median for companies of similar size. For companies with a market capitalization below AU$282 million, such as Cryosite, the median CEO salary is around AU$405,000.
Cryosite’s CEO received A$337,000 in compensation for the year ending. This is below average for companies of a similar size and seems pretty reasonable to me. CEO compensation isn’t the most important aspect of a company to consider, but when it’s reasonable, it gives me a bit more confidence that executives are looking out for shareholders’ interests. I would also say that reasonable levels of compensation attest to good decision-making more generally.
Is cryositis worth monitoring?
Cryosite revenue took off like any random cryptocurrency, in 2017. The icing on the cake is that insiders own a large part of the company and one even bought more shares. Due to the potential that it has reached an inflection point, I would suggest that Cryosite belongs to the High from your watch list. Even so, be aware that Cryosite shows 3 warning signs in our investment analysis you should know…
There are many other companies whose insiders buy shares. So if you like the sound of Cryosite, you’ll probably like this one free list of growing companies insiders are buying.
Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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