Do CSP's (NASDAQ:CSPI) Earnings Warrant Your Attention?

Simply Wall St · 07/01 10:21

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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 CSP (NASDAQ:CSPI), 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.

See our latest analysis for CSP

How Fast Is CSP Growing Its Earnings Per Share?

CSP has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. CSP's EPS skyrocketed from US$0.37 to US$0.52, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 41%.

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. CSP reported flat revenue and EBIT margins over the last year. While this doesn't ring alarm bells, it may not meet the expectations of growth-minded investors.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGM:CSPI Earnings and Revenue History July 1st 2024

CSP isn't a huge company, given its market capitalisation of US$145m. That makes it extra important to check on its balance sheet strength.

Are CSP 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

One gleaming positive for CSP, in the last year, is that a certain insider has buying shares with ample enthusiasm. Specifically, in one large transaction company insider Joseph Nerges paid US$330k, for stock at US$9.19 per share. It doesn't get much better than that, in terms of large investments from insiders.

Along with the insider buying, another encouraging sign for CSP is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$45m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 31% of the company, demonstrating a degree of high-level alignment with shareholders.

Should You Add CSP To Your Watchlist?

You can't deny that CSP has grown its earnings per share at a very impressive rate. That's attractive. Better still, insiders own a large chunk of the company and one has even been buying more shares. Astute investors will want to keep this stock on watch. Before you take the next step you should know about the 2 warning signs for CSP that we have uncovered.

Keen growth investors love to see insider activity. Thankfully, CSP isn't the only one. You can see a a curated list of companies which have exhibited consistent growth accompanied by high insider ownership.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.