Is Now The Time To Put CEPS (LON:CEPS) On Your Watchlist?
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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.
In contrast to all that, many investors prefer to focus on companies like CEPS (LON:CEPS), which has not only revenues, but also profits. 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.
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If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Impressively, CEPS has grown EPS by 19% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
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. EBIT margins for CEPS remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 6.3% to UK£32m. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
View our latest analysis for CEPS
CEPS isn't a huge company, given its market capitalisation of UK£4.5m. That makes it extra important to check on its balance sheet strength.
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So those who are interested in CEPS will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Owning 42% of the company, insiders have plenty riding on the performance of the the share price. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. Valued at only UK£4.5m CEPS is really small for a listed company. So despite a large proportional holding, insiders only have UK£1.9m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.
You can't deny that CEPS has grown its earnings per share at a very impressive rate. That's attractive. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. The growth and insider confidence is looked upon well and so it's worthwhile to investigate further with a view to discern the stock's true value. However, before you get too excited we've discovered 2 warning signs for CEPS (1 doesn't sit too well with us!) that you should be aware of.
Although CEPS certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of British companies that not only boast of strong growth but have strong insider backing.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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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