The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Gullewa (ASX:GUL). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
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. Gullewa managed to grow EPS by 9.9% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.
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. It's noted that Gullewa's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Gullewa shareholders can take confidence from the fact that EBIT margins are up from 60% to 65%, and revenue is growing. Both of which are great metrics to check off for potential growth.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
ASX:GUL Earnings and Revenue History December 5th 2024
Gullewa isn't a huge company, given its market capitalisation of AU$12m. That makes it extra important to check on its balance sheet strength.
Are Gullewa 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
It's nice to see that there have been no reports of any insiders selling shares in Gullewa in the previous 12 months. So it's definitely nice that Executive Chairman of the Board Anthony Howland-Rose bought AU$12k worth of shares at an average price of around AU$0.056. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Gullewa.
These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for Gullewa will reveal that insiders own a significant piece of the pie. Indeed, with a collective holding of 55%, company insiders are in control and have plenty of capital behind the venture. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. Valued at only AU$12m Gullewa is really small for a listed company. So this large proportion of shares owned by insiders only amounts to AU$6.8m. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.
Should You Add Gullewa To Your Watchlist?
One important encouraging feature of Gullewa is that it is growing profits. Better yet, insiders are significant shareholders, and have been buying more shares. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. We don't want to rain on the parade too much, but we did also find 4 warning signs for Gullewa (2 make us uncomfortable!) that you need to be mindful of.
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.
