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Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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. 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 PrimeEnergy Resources (NASDAQ:PNRG), which has not only revenues, but also profits. 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.
Check out our latest analysis for PrimeEnergy Resources
PrimeEnergy Resources' Improving Profits
In the last three years PrimeEnergy Resources' 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. To the delight of shareholders, PrimeEnergy Resources' EPS soared from US$14.15 to US$20.73, over the last year. That's a commendable gain of 46%.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. We note that while EBIT margins have improved from 18% to 20%, the company has actually reported a fall in revenue by 9.7%. While not disastrous, these figures could be better.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
PrimeEnergy Resources isn't a huge company, given its market capitalisation of US$193m. That makes it extra important to check on its balance sheet strength.
Are PrimeEnergy Resources Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that PrimeEnergy Resources insiders own a significant number of shares certainly is appealing. To be exact, company insiders hold 63% 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. To give you an idea, the value of insiders' holdings in the business are valued at US$121m at the current share price. So there's plenty there to keep them focused!