Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 contrast to all that, I prefer to spend time on companies like Emclaire Financial (NASDAQ:EMCF), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Fast Is Emclaire Financial Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that Emclaire Financial has managed to grow EPS by 22% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
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. I note that Emclaire Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Emclaire Financial's EBIT margins were flat over the last year, revenue grew by a solid 20% to US$35m. That's a real positive.
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.
Emclaire Financial isn't a huge company, given its market capitalization of US$81m. That makes it extra important to check on its balance sheet strength.
Are Emclaire Financial Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
While Emclaire Financial insiders did net -US$34k selling stock over the last year, they invested US$783k, a much higher figure. You could argue that level of buying implies genuine confidence in the business. We also note that it was the Independent Director, Nicholas Varischetti, who made the biggest single acquisition, paying US$594k for shares at about US$27.30 each.
The good news, alongside the insider buying, for Emclaire Financial bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$16m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 20% of the company; visible skin in the game.
Does Emclaire Financial Deserve A Spot On Your Watchlist?
You can't deny that Emclaire Financial has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. Even so, be aware that Emclaire Financial is showing 1 warning sign in our investment analysis , you should know about...
As a growth investor I do like to see insider buying. But Emclaire Financial 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. 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.
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