Yahoo Finance I Ran A Stock Scan For Earnings Growth And Gale Pacific (ASX:GAP) Passed With Ease
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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Gale Pacific (ASX:GAP). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
See our latest analysis for Gale Pacific
How Fast Is Gale Pacific Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, Gale Pacific's EPS has grown 36% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Gale Pacific shareholders can take confidence from the fact that EBIT margins are up from 5.7% to 9.5%, and revenue is growing. That's great to see, on both counts.
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.
Since Gale Pacific is no giant, with a market capitalization of AU$105m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Gale Pacific Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Not only did Gale Pacific insiders refrain from selling stock during the year, but they also spent AU$242k buying it. That's nice to see, because it suggests insiders are optimistic. Zooming in, we can see that the biggest insider purchase was by Non Executive Chairman David Allman for AU$116k worth of shares, at about AU$0.13 per share.
Should You Add Gale Pacific To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Gale Pacific's strong EPS growth. The growth rate whets my appetite for research, and the insider buying only increases my interest in the stock. To put it succinctly; Gale Pacific is a strong candidate for your watchlist. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Gale Pacific that you should be aware of.
As a growth investor I do like to see insider buying. But Gale Pacific 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.
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