It is natural that many investors, especially those who are new to the game, prefer to buy stocks in "attractive" stocks with a good history, even if those companies lose money. But as Warren Buffett has reflected, "If you've been playing poker for half an hour and still don't know who the scapegoat is, you are the scapegoat." When they buy stocks of this type, investors are often the scapegoats.
In the era of blue-sky investing in tech stocks, my choice may seem old-fashioned; I still prefer profitable companies like Torrent capital (CVE: TORR). Even if stocks were fully valued today, most capitalists would recognize their earnings as the demonstration of constant value generation. By comparison, loss-making companies act like a sponge for capital, but unlike that sponge, they don't always produce something when squeezed out.
Check out our latest Torrent Capital analysis
Torrent Capital earnings improvement
In a capitalist society, capital chases profits, and that means that stock prices tend to rise with earnings per share (EPS). So, like the hint of a smile on a face that I love, EPS growth usually makes me look twice. You can imagine, then, that it almost blew my mind when I realized that Torrent Capital increased its EPS from CA $ 0.025 to CA $ 0.78, in a short year. Although that growth rate is unlikely to be repeated, it looks like a big improvement. Could this be a sign that the company has reached a tipping point?
I like to take a look at earnings before interest and tax margins (EBIT), as well as revenue growth, to get another insight into the quality of the company's growth. Not all income from Torrent Capital this year is income of operationsSo keep in mind that the revenue and margin figures I have used may not be the best representation of the underlying business. Torrent Capital shareholders can rely on the fact that EBIT margins have increased from 43% to 92% and revenues are growing. It's great to see it, both ways.
You can take a look at the revenue and profit growth trend of the company, in the chart below. To see the real numbers, click on the graph.
Torrent Capital is not a large company, given its market capitalization of CA $ 26 million. That makes it very important to check your balance sheet strength.
Are Torrent Capital Insiders aligned with all shareholders?
Like kids on the streets who stand up for their beliefs, insider stock buying gives me reason to believe in a better future. This is because insider buying often indicates that those closest to the company are confident that the share price will perform well. However, small purchases aren't always indicative of conviction, and insiders don't always get it right.
Whichever way you look at it, Torrent Capital shareholders can get a quiet reassurance from the fact that insiders spent CA $ 598k to buy shares over the last year. When you contrast that with the complete lack of sales, it's easy for shareholders to burst with joyous anticipation. As we zoom in, we can see that the largest insider purchase was made by CEO and Director Wade Dawe for CA $ 95,000 worth of shares, at approximately CA $ 0.82 per share.
In addition to insider buying, we can also see that Torrent Capital insiders own a large part of the company. In reality, with 41% of the company in their name, insiders are deeply involved in the business. I am reassured by this type of alignment, as it suggests that the business will be run in the interest of shareholders. Valued at just CA $ 26 million, Torrent Capital is really small for a publicly traded company. So despite a large proportional stake, insiders only have CA $ 11 million in stock. It may not be a large sum, but it should be enough to keep those inside motivated!
Is Torrent Capital worth keeping an eye on?
Torrent Capital's earnings have taken off like any random cryptocurrency did, in 2017. Just as encouraging; insiders own and buy more shares. This quick summary suggests that the deal may be of good quality and also at an inflection point, so perhaps Torrent Capital deserves some timely attention. We don't want to rain too much at the parade, but we also find 2 warning signs for Torrent Capital (1 is worrying!) What to watch out for.
As a growing investor, I like to see inside purchases. But Torrent Capital is not alone. You can see a a free list of them here.
Please note that the insider trading discussed in this article refers to reportable transactions in the applicable jurisdiction.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares, and it does not take into account your objectives or your financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the listed stocks.
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