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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
In contrast to all that, many investors prefer to focus on companies like P.A.M. Transportation Services (NASDAQ:PTSI), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide P.A.M. Transportation Services with the means to add long-term value to shareholders.
P.A.M. Transportation Services' Earnings Per Share Are Growing
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. P.A.M. Transportation Services' shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 48%. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.
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. Our analysis has highlighted that P.A.M. Transportation Services' revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. The good news is that P.A.M. Transportation Services is growing revenues, and EBIT margins improved by 4.8 percentage points to 15%, over the last year. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
NasdaqGM:PTSI Earnings and Revenue History July 31st 2022
While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check P.A.M. Transportation Services' balance sheet strength, before getting too excited.
Are P.A.M. Transportation Services 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
P.A.M. Transportation Services top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the Independent Director, W. Davis, paid US$126k to buy shares at an average price of US$15.73. Purchases like this clue us in to the to the faith management has in the business' future.
And the insider buying isn't the only sign of alignment between shareholders and the board, since P.A.M. Transportation Services insiders own more than a third of the company. To be exact, company insiders hold 70% of the company, so their decisions have a significant impact on their investments. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. That level of investment from insiders is nothing to sneeze at.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because P.A.M. Transportation Services' CEO, Joseph Vitiritto, is paid at a relatively modest level when compared to other CEOs for companies of this size. For companies with market capitalisations between US$400m and US$1.6b, like P.A.M. Transportation Services, the median CEO pay is around US$4.0m.
The CEO of P.A.M. Transportation Services only received US$1.5m in total compensation for the year ending December 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Should You Add P.A.M. Transportation Services To Your Watchlist?
P.A.M. Transportation Services' earnings per share growth have been climbing higher at an appreciable rate. To sweeten the deal, insiders have significant skin in the game with one even acquiring more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe P.A.M. Transportation Services deserves timely attention. We should say that we've discovered 1 warning sign for P.A.M. Transportation Services that you should be aware of before investing here.
Keen growth investors love to see insider buying. Thankfully, P.A.M. Transportation Services isn't the only one. You can see a a free list of them here.
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.
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