Yahoo Finance Do Lark Distilling's (ASX:LRK) Earnings Warrant Your Attention?
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Lark Distilling (ASX:LRK). 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.
View our latest analysis for Lark Distilling
Lark Distilling's Improving Profits
In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. You can imagine, then, that it almost knocked my socks off when I realized that Lark Distilling grew its EPS from AU$0.00024 to AU$0.039, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?
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. The good news is that Lark Distilling is growing revenues, and EBIT margins improved by 3.2 percentage points to 4.6%, over the last year. That's great to see, on both counts.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Lark Distilling EPS 100% free.
Are Lark Distilling Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
The good news is that Lark Distilling insiders spent a whopping AU$2.9m on stock in just one year, and I didn't see any selling. As if for a flower bud approaching bloom, I become an expectant observer, anticipating with hope, that something splendid is coming. It is also worth noting that it was Geoff Bainbridge who made the biggest single purchase, worth AU$2.9m, paying AU$5.00 per share.
Along with the insider buying, another encouraging sign for Lark Distilling is that insiders, as a group, have a considerable shareholding. With a whopping AU$90m worth of shares as a group, insiders have plenty riding on the company's success. That holding amounts to 32% of the stock on issue, thus making insiders influential, and aligned, owners of the business.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Laura McBain is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Lark Distilling with market caps between AU$133m and AU$533m is about AU$748k.
The CEO of Lark Distilling was paid just AU$58k in total compensation for the year ending . You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Is Lark Distilling Worth Keeping An Eye On?
Lark Distilling's earnings per share have taken off like a rocket aimed right at the moon. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Lark Distilling deserves timely attention. You should always think about risks though. Case in point, we've spotted 3 warning signs for Lark Distilling you should be aware of, and 1 of them makes us a bit uncomfortable.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Lark Distilling, 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.
