Do Birchcliff Energy's (TSE:BIR) Earnings Warrant Your Attention?
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 currently lacks a track record of revenue and profit. 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
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 Birchcliff Energy (TSE:BIR). 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.
View our latest analysis for Birchcliff Energy
How Fast Is Birchcliff Energy Growing Its Earnings Per Share?
In the last three years Birchcliff Energy'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. So it would be better to isolate the growth rate over the last year for our analysis. Impressively, Birchcliff Energy's EPS catapulted from CA$0.92 to CA$2.60, over the last year. It's a rarity to see 182% year-on-year growth like that. That could be a sign that the business has reached a true inflection point.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Our analysis has highlighted that Birchcliff Energy's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. The good news is that Birchcliff Energy is growing revenues, and EBIT margins improved by 23.8 percentage points to 67%, 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. Click on the chart to see the exact numbers.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Birchcliff Energy's future EPS 100% free.
Are Birchcliff Energy 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. 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.
Any way you look at it Birchcliff Energy shareholders can gain quiet confidence from the fact that insiders shelled out CA$986k to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that there are brighter days ahead. It is also worth noting that it was Executive Vice President of Operations David Humphreys who made the biggest single purchase, worth CA$634k, paying CA$10.79 per share.
The good news, alongside the insider buying, for Birchcliff Energy bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have CA$57m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 2.0% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because Birchcliff Energy's CEO, Jeff Tonken, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Birchcliff Energy with market caps between CA$1.3b and CA$4.3b is about CA$3.0m.
Birchcliff Energy offered total compensation worth CA$1.9m to its CEO in the year to December 2021. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does Birchcliff Energy Deserve A Spot On Your Watchlist?
Birchcliff Energy's earnings have taken off in quite an impressive fashion. What's more, insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Birchcliff Energy deserves timely attention. Of course, profit growth is one thing but it's even better if Birchcliff Energy is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Birchcliff Energy, 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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