Here's Why We Think Converge Technology Solutions (TSE:CTS) Is Well Worth Watching
Simply Wall St
5 min read
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. 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.
In contrast to all that, many investors prefer to focus on companies like Converge Technology Solutions (TSE:CTS), which has not only revenues, but also profits. 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.
Over the last three years, Converge Technology Solutions 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. As a result, we'll zoom in on growth over the last year, instead. Converge Technology Solutions' EPS skyrocketed from CA$0.086 to CA$0.13, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 52%.
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. EBIT margins for Converge Technology Solutions remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 63% to CA$2.2b. That's a real positive.
In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.
TSX:CTS Earnings and Revenue History March 31st 2023
Are Converge Technology Solutions 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.
The real kicker here is that Converge Technology Solutions insiders spent a staggering CA$2.4m on acquiring shares in just one year, without single share being sold in the meantime. Knowing this, Converge Technology Solutions will have have all eyes on them in anticipation for the what could happen in the near future. We also note that it was the CEO & Director, Shaun Maine, who made the biggest single acquisition, paying CA$1.3m for shares at about CA$7.08 each.
Along with the insider buying, another encouraging sign for Converge Technology Solutions is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at CA$45m. This considerable investment should help drive long-term value in the business. As a percentage, this totals to 5.4% of the shares on issue for the business, an appreciable amount considering the market cap.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Shaun Maine, is paid less than the median for similar sized companies. For companies with market capitalisations between CA$541m and CA$2.2b, like Converge Technology Solutions, the median CEO pay is around CA$2.1m.
Converge Technology Solutions' CEO took home a total compensation package of CA$986k in the year prior to December 2021. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.
Does Converge Technology Solutions Deserve A Spot On Your Watchlist?
You can't deny that Converge Technology Solutions has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. These things considered, this is one stock worth watching. You should always think about risks though. Case in point, we've spotted 2 warning signs for Converge Technology Solutions you should be aware of, and 1 of them is a bit unpleasant.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Converge Technology Solutions, you'll probably love this freelist of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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