Investors are often guided by the idea of discovering ‘the next big thing’, even if that means buying ‘story stocks’ without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Algoma Central (TSE:ALC). While this doesn’t necessarily speak to whether it’s undervalued, the profitability of the business is enough to warrant some appreciation – especially if its growing.
See our latest analysis for Algoma Central
Algoma Central’s Improving Profits
In the last three years Algoma Central’s earnings per share took off; so much so that it’s a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Algoma Central has grown its trailing twelve month EPS from CA$2.64 to CA$2.75, in the last year. That’s a fair increase of 4.3%.
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. While Algoma Central did well to grow revenue over the last year, EBIT margins were dampened at the same time. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.
The chart below shows how the company’s bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
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 Algoma Central’s future profits.
Are Algoma Central Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, 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.
The good news for Algoma Central shareholders is that no insiders reported selling shares in the last year. So it’s definitely nice that Independent Director Eric Stevenson bought CA$13k worth of shares at an average price of around CA$15.48. It seems that at least one insider is prepared to show the market there is potential within Algoma Central.
Does Algoma Central Deserve A Spot On Your Watchlist?
As previously touched on, Algoma Central is a growing business, which is encouraging. While some companies are struggling to grow EPS, Algoma Central seems free from that morose affliction. Despite there being a solitary insider adding to their holdings, it’s enough to consider adding this to the watchlist. You should always think about risks though. Case in point, we’ve spotted 2 warning signs for Algoma Central you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Algoma Central, you’ll probably love this free list of growing companies that insiders are buying.
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.
