Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Clinuvel Pharmaceuticals (ASX:CUV). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Clinuvel Pharmaceuticals Growing Its Earnings Per Share?
Over the last three years, Clinuvel Pharmaceuticals has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Clinuvel Pharmaceuticals's EPS shot from AU$0.13 to AU$0.33, over the last year. You don't see 161% year-on-year growth like that, very often.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of Clinuvel Pharmaceuticals's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Clinuvel Pharmaceuticals shareholders can take confidence from the fact that EBIT margins are up from 32% to 52%, and revenue is growing. 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.
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Clinuvel Pharmaceuticals's balance sheet strength, before getting too excited.
Are Clinuvel Pharmaceuticals Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Clinuvel Pharmaceuticals insiders have a significant amount of capital invested in the stock. Notably, they have an enormous stake in the company, worth AU$184m. Coming in at 15% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
Should You Add Clinuvel Pharmaceuticals To Your Watchlist?
Clinuvel Pharmaceuticals's earnings have taken off like any random crypto-currency did, back in 2017. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So to my mind Clinuvel Pharmaceuticals is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Of course, profit growth is one thing but it's even better if Clinuvel Pharmaceuticals is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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