Does Bowler Metcalf (JSE:BCF) deserve a spot on your watchlist?

Many investors, especially inexperienced ones, often buy shares of companies with a good track record, even if those companies are losing money. The reality, however, is that if a company loses money every year and for a long enough time, its investors usually take their share of those losses. A loss-making company has not yet managed to show a profit and eventually the inflow of external capital may be exhausted.

So if the concept of high risk, high reward doesn’t fit, you may be more interested in profitable, growing companies, e.g Bowler Metcalf (JSE:BCF). While this doesn’t necessarily indicate whether it’s undervalued, the company’s profitability is enough to justify some appreciation – especially if its value is rising.

Check out our latest analysis for Bowler Metcalf

Bowler Metcalf’s earnings per share are rising

If you believe that markets are even remotely efficient, then over the long term you can expect a company’s share price to follow its earnings per share (EPS) performance. This makes EPS growth an attractive quality for any company. Over the last three years, Bowler Metcalf has grown EPS by 7.0% annually. This may not be a particularly high increase, but it shows that earnings per share are steadily heading in the right direction.

It’s often helpful to look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get a different perspective on the quality of a company’s growth. Music to the ears of Bowler Metcalf shareholders is that EBIT margin has increased from 10% to 14% over the last 12 months, and revenues are also trending upwards. In our book, checking these two boxes is a good sign of growth.

The chart below shows how the company’s earnings and profits have developed over time. For more details, please click the image.

Since Bowler Metcalf is not a giant, with a market capitalization of R860m, ​​you should definitely check its cash and debt before he is too excited about the prospects.

Are Bowler Metcalf insiders aligned with all shareholders?

There’s always a certain intrigue around insider interest in a company, and many investors look for companies where insiders put their money where their mouth is. This view is based on the possibility that stock purchases signal price increases on behalf of the buyer. But small purchases don’t always convey conviction, and insiders don’t always get it right.

The first piece of good news is that no Bowler Metcalf insiders have reported selling shares in the last twelve months. But the really good news is that CEO and Executive Director Paul Sass spent R6.2 million to buy shares at an average price of around R10.99. Such large purchases may signal a bargain; actions speak louder than words.

The story continues

While it is commendable that insiders are buying Bowler Metcalf shares, there is more evidence that management is shareholder friendly. Specifically, the CEO earns a pretty reasonable salary for a company of this size. The median total compensation for CEOs of companies of a similar size to Bowler Metcalf, with a market capitalization of less than R3.4b, is approximately R6.5 million.

CEO Bowler Metcalf received R4.7 million in remuneration for the year ending June 2024. This is below average for companies of a similar size and seems quite reasonable. CEO compensation isn’t the most important aspect of a company to consider, but if it’s reasonable, it provides a little more assurance that management is looking out for shareholder interests. Generally speaking, an argument can be made that reasonable levels of pay indicate good decision-making.

Does Bowler Metcalf deserve a spot on your watchlist?

The positive for Bowler Metcalf is growing EPS. Nice to see that. There’s more to love about it, too – the CEO’s modest compensation and insider buying interest are further positives for the company. All things considered, Bowler Metcalf certainly shows his upside and is worthy of taking his research to the next stage. We should say we discovered it 3 warning signs for Bowler Metcalf (1 makes us feel a little uncomfortable!) that you should know before investing here.

Growth investors love watching insider activity. Fortunately, Bowler Metcalf isn’t the only one. You can see a curated list of South African companies that have demonstrated consistent growth accompanied by high levels of insider ownership.

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

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This article by Simply Wall St is of a general nature. We comment based on historical data and analyst forecasts, using only an unbiased methodology, and our articles are not intended to provide financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide long-term, focused analysis based on fundamental data. Please note that our analysis may not reflect the latest price-sensitive company announcements or qualitative content. Simply Wall St has no position in any of the stocks mentioned.