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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.
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 Majestic Gold (CVE:MJS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Majestic Gold with the means to add long-term value to shareholders.
See our latest analysis for Majestic Gold
How Fast Is Majestic Gold Growing?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Majestic Gold grew its EPS by 9.5% per year. That growth rate is fairly good, assuming the company can keep it up.
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. The music to the ears of Majestic Gold shareholders is that EBIT margins have grown from 34% to 40% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.
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.
Since Majestic Gold is no giant, with a market capitalisation of CA$83m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Majestic Gold 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 Majestic Gold in the previous 12 months. Add in the fact that James Thomas Mackie, the Corporate Secretary & CFO of the company, paid US$25k for shares at around US$0.062 each. It seems that at least one insider is prepared to show the market there is potential within Majestic Gold.