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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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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 Precision Drilling (TSE:PD). 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 Precision Drilling
Precision Drilling's Improving Profits
Over the last three years, Precision Drilling has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. To the delight of shareholders, Precision Drilling's EPS soared from CA$11.53 to CA$15.91, over the last year. That's a fantastic gain of 38%.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Precision Drilling's EBIT margins have fallen over the last twelve months, but the flat revenue sends a message of stability. Shareholders will be hopeful that the company can buck this trend.
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.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Precision Drilling's forecast profits?
Are Precision Drilling Insiders Aligned With All Shareholders?
It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Precision Drilling shares worth a considerable sum. Indeed, they hold CA$39m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 3.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.