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Should You Be Adding Karoon Energy (ASX:KAR) To Your Watchlist Today?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Karoon Energy (ASX:KAR). 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 Karoon Energy

How Fast Is Karoon Energy Growing Its Earnings Per Share?

Karoon Energy has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Karoon Energy's EPS shot up from US$0.20 to US$0.31; a result that's bound to keep shareholders happy. That's a commendable gain of 54%.

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Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The good news is that Karoon Energy is growing revenues, and EBIT margins improved by 9.3 percentage points to 51%, over the last year. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

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

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Karoon Energy's future EPS 100% free.

Are Karoon Energy Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Shareholders in Karoon Energy will be more than happy to see insiders committing themselves to the company, spending US$611k on shares in just twelve months. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. Zooming in, we can see that the biggest insider purchase was by MD, CEO & Director Julian Fowles for AU$368k worth of shares, at about AU$2.05 per share.

Is Karoon Energy Worth Keeping An Eye On?

For growth investors, Karoon Energy's raw rate of earnings growth is a beacon in the night. Not only is that growth rate rather juicy, but the insider buying adds fuel to the fire. So on this analysis, Karoon Energy is probably worth spending some time on. We should say that we've discovered 3 warning signs for Karoon Energy (2 are concerning!) that you should be aware of before investing here.

Keen growth investors love to see insider buying. Thankfully, Karoon Energy isn't the only one. You can see a a curated list of Australian companies which have exhibited consistent growth accompanied by recent insider buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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

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.