It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
In contrast to all that, many investors prefer to focus on companies like Mercer International (NASDAQ:MERC), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
How Quickly Is Mercer International Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Shareholders will be happy to know that Mercer International's EPS has grown 27% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that Mercer International is growing revenues, and EBIT margins improved by 13.8 percentage points to 22%, 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. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Mercer International's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Mercer International Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Even though there was some insider selling over the last year, that was outweighed by company insider Peter Kellogg's huge outlay of US$2.2m, spent buying shares. The average price paid was about US$10.57. Big purchases like that are well worth noting, especially for those who like to follow the insider money.
On top of the insider buying, it's good to see that Mercer International insiders have a valuable investment in the business. Given insiders own a significant chunk of shares, currently valued at US$84m, they have plenty of motivation to push the business to succeed. Amounting to 9.5% of the outstanding shares, indicating that insiders are also significantly impacted by the decisions they make on the behalf of the business.
Does Mercer International Deserve A Spot On Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Mercer International's strong EPS growth. On top of that, insiders own a significant piece of the pie when it comes to the company's stock, and one has been buying more. So it's fair to say that this stock may well deserve a spot on your watchlist. Still, you should learn about the 4 warning signs we've spotted with Mercer International (including 1 which is a bit unpleasant).
Keen growth investors love to see insider buying. Thankfully, Mercer International 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.
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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.
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