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. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Gear Energy (TSE:GXE). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
View our latest analysis for Gear Energy
Gear Energy's Improving Profits
Over the last three years, Gear Energy has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, Gear Energy's EPS grew from CA$0.18 to CA$0.48, over the previous 12 months. It's a rarity to see 175% year-on-year growth like that. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.
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. Gear Energy shareholders can take confidence from the fact that EBIT margins are up from -50% to 57%, and revenue is growing. 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.
Gear Energy isn't a huge company, given its market capitalisation of CA$301m. That makes it extra important to check on its balance sheet strength.
Are Gear Energy Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Gear Energy insiders have a significant amount of capital invested in the stock. To be specific, they have CA$17m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 5.6% of the company, demonstrating a degree of high-level alignment with shareholders.