For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and 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 Pro-Pac Packaging (ASX:PPG). 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.
Pro-Pac Packaging's Improving Profits
In the last three years Pro-Pac Packaging's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. It's good to see that Pro-Pac Packaging's EPS have grown from AU$0.0082 to AU$0.0097 over twelve months. That's a 18% gain; respectable growth in the broader scheme of things.
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. Pro-Pac Packaging's EBIT margins are flat but, of some concern, its revenue is actually down. Suffice it to say that is not a great sign of growth.
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.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Pro-Pac Packaging's future profits.
Are Pro-Pac Packaging Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We note that Pro-Pac Packaging insiders spent AU$255k on stock, over the last year; in contrast, we didn't see any selling. That's nice to see, because it suggests insiders are optimistic. Zooming in, we can see that the biggest insider purchase was by Independent Non-Executive Director Rupert Harrington for AU$100k worth of shares, at about AU$0.20 per share.
Should You Add Pro-Pac Packaging To Your Watchlist?
One positive for Pro-Pac Packaging is that it is growing EPS. That's nice to see. Not every business can grow its EPS, but Pro-Pac Packaging certainly can. The cherry on top is the insider share purchases, which provide an extra impetus to keep and eye on this stock, at the very least. Still, you should learn about the 3 warning signs we've spotted with Pro-Pac Packaging (including 1 which is concerning) .
As a growth investor I do like to see insider buying. But Pro-Pac Packaging 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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