Yahoo Finance Here's Why Etherstack (ASX:ESK) Has Caught The Eye Of Investors
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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
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 Etherstack (ASX:ESK). 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 Etherstack
How Fast Is Etherstack Growing Its Earnings Per Share?
In the last three years Etherstack's 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. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Etherstack's EPS grew from US$0.0063 to US$0.018, over the previous 12 months. Year on year growth of 182% is certainly a sight to behold. That could be a sign that the business has reached a true inflection point.
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. The music to the ears of Etherstack shareholders is that EBIT margins have grown from 12% to 21% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Since Etherstack is no giant, with a market capitalisation of AU$49m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Etherstack 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
The good news for Etherstack shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Non-Executive Chairman Peter Francis Stephens bought US$36k worth of shares at an average price of around US$0.40. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Etherstack.
And the insider buying isn't the only sign of alignment between shareholders and the board, since Etherstack insiders own more than a third of the company. Indeed, with a collective holding of 82%, company insiders are in control and have plenty of capital behind the venture. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. In terms of absolute value, insiders have US$40m invested in the business, at the current share price. That should be more than enough to keep them focussed on creating shareholder value!
Does Etherstack Deserve A Spot On Your Watchlist?
Etherstack's earnings have taken off in quite an impressive fashion. To sweeten the deal, insiders have significant skin in the game with one even acquiring more. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Etherstack belongs near the top of your watchlist. You should always think about risks though. Case in point, we've spotted 2 warning signs for Etherstack you should be aware of, and 1 of them is concerning.
The good news is that Etherstack is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
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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