Investors are often driven by the idea of discovering “the next big thing”, even if that means buying “historic stocks” without any income, let alone profit. Sometimes these stories can cloud investors’ minds, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always in a race against time to achieve financial viability, so investors in these companies may take on more risk than they should.
Contrary to all this, many investors prefer to focus on companies like Olympic steel (NASDAQ:ZEUS), which not only generates revenue, but also profits. Even if this company is correctly valued by the market, investors would agree that generating consistent earnings will continue to provide Olympic Steel with the means to add long-term shareholder value.
How fast is Olympic Steel growing its earnings per share?
In business, profits are a key measure of success; and stock prices tend to reflect earnings per share (EPS) performance. This is why EPS growth is viewed so favorably. It is an outstanding achievement for Olympic Steel to have grown EPS from $1.38 to $12.25 in just one year. While sustaining growth at this level is difficult, it bodes well for the company’s future prospects. Could this be a sign that the company has reached an inflection point?
A careful look at revenue growth and earnings before interest and tax (EBIT) margins can help inform a view on the sustainability of recent earnings growth. The good news is that Olympic Steel is increasing its revenue and EBIT margins have improved by 5.5 percentage points to 7.6% compared to last year. Checking both of these boxes is a good sign of growth, in our book.
In the table below, you can see how the company has increased its profits and revenue over time. Click on the table to see the exact numbers.
Olympic Steel is not a big company, given its market capitalization of $292 million. It is therefore very important to check the strength of its balance sheet.
Are Olympic Steel insiders aligned with all shareholders?
This should give investors a sense of security in owning stock in a company if insiders also own stock, creating a close alignment of their interests. So it’s good to see that Olympic Steel insiders have a lot of capital invested in the stock. Indeed, they hold for 39 million dollars of its shares. It shows strong buy-in and can indicate belief in the business strategy. As a percentage, this represents 14% of the shares issued for the company, a significant amount given the market capitalization.
Should you add Olympic Steel to your watch list?
Olympic Steel’s earnings per share growth has increased at an appreciable pace. This type of growth is nothing short of eye-catching, and the significant investment held by insiders should certainly inform the company’s vision. Sometimes rapid EPS growth is a sign that the business has reached an inflection point, so there is a potential opportunity here. Based on the sum of its parts, we really think it’s worth keeping a very close eye on Olympic Steel. We don’t want to rain too much on the parade, but we also found 4 warning signs for Olympic steel (3 make us uncomfortable!) which you should be aware of.
There is always the possibility of doing well by buying stocks that are not increased income and not have insiders buying stocks. But for those who consider these measures important, we encourage you to check out the companies that do have these characteristics. You can access a free list of them here.
Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.
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