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. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Imperial Pacific (ASX:IPC). 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. That makes EPS growth an attractive quality for any company. We can see that in the last three years Imperial Pacific grew its EPS by 13% per year. 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. Not all of Imperial Pacific's revenue last year was revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. The music to the ears of Imperial Pacific shareholders is that EBIT margins have grown from -25% to 27% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
ASX:IPC Earnings and Revenue History May 29th 2024
Imperial Pacific isn't a huge company, given its market capitalisation of AU$6.7m. That makes it extra important to check on its balance sheet strength.
Are Imperial Pacific Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Our analysis into Imperial Pacific has shown that insiders have sold AU$28k worth of shares over the last 12 months. But this is outweighed by the trades from Chairman Peter E. Murray who spent AU$161k buying shares, at an average price of around AU$1.29. Overall, that is something good to take away.
On top of the insider buying, we can also see that Imperial Pacific insiders own a large chunk of the company. Indeed, with a collective holding of 86%, company insiders are in control and have plenty of capital behind the venture. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Although, with Imperial Pacific being valued at AU$6.7m, this is a small company we're talking about. That means insiders only have AU$5.7m worth of shares, despite the large proportional holding. That might not be a huge sum but it should be enough to keep insiders motivated!
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because Imperial Pacific's CEO, Peter E. Murray, 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 Imperial Pacific with market caps under AU$301m is about AU$449k.
Imperial Pacific's CEO took home a total compensation package of AU$155k in the year prior to June 2023. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add Imperial Pacific To Your Watchlist?
As previously touched on, Imperial Pacific is a growing business, which is encouraging. On top of that, we've seen insiders buying shares even though they already own plenty. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. It's still necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Imperial Pacific (at least 4 which don't sit too well with us) , and understanding them should be part of your investment process.
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.
