It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 Ecovyst (NYSE:ECVT). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Ecovyst with the means to add long-term value to shareholders.
Check out our latest analysis for Ecovyst
How Fast Is Ecovyst Growing Its Earnings Per Share?
In the last three years Ecovyst's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. Ecovyst's EPS shot up from US$0.41 to US$0.54; a result that's bound to keep shareholders happy. That's a impressive gain of 31%.
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. While Ecovyst may have maintained EBIT margins over the last year, revenue has fallen. Suffice it to say that is not a great sign of growth.
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.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Ecovyst.
Are Ecovyst Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Shareholders in Ecovyst will be more than happy to see insiders committing themselves to the company, spending US$556k on shares in just twelve months. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. We also note that it was the Independent Director, Jonny Ginns, who made the biggest single acquisition, paying US$367k for shares at about US$9.09 each.