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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Caribbean Utilities Company (TSE:CUP.U). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for Caribbean Utilities Company
How Quickly Is Caribbean Utilities Company Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Caribbean Utilities Company managed to grow EPS by 8.3% per year, over three years. That's a good rate of growth, if it can be sustained.
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. Unfortunately, Caribbean Utilities Company's revenue dropped 2.9% last year, but the silver lining is that EBIT margins improved from 11% to 13%. That's not a good look.
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.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are Caribbean Utilities Company 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. 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.
We haven't seen any insiders selling Caribbean Utilities Company shares, in the last year. With that in mind, it's heartening that Jennifer Frizelle, the Independent Director of the company, paid US$6.0k for shares at around US$11.98 each. It seems that at least one insider is prepared to show the market there is potential within Caribbean Utilities Company.