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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Boralex (TSE:BLX). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Boralex with the means to add long-term value to shareholders.
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Boralex has grown EPS by 25% per year, compound, in the last three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that Boralex's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Boralex shareholders can take confidence from the fact that EBIT margins are up from 20% to 28%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.
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.
Are Boralex Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Shareholders in Boralex will be more than happy to see insiders committing themselves to the company, spending CA$445k on shares in just twelve months. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. We also note that it was the Independent Director, Zin Smati, who made the biggest single acquisition, paying CA$111k for shares at about CA$31.67 each.
It's commendable to see that insiders have been buying shares in Boralex, but there is more evidence of shareholder friendly management. To be specific, the CEO is paid modestly when compared to company peers of the same size. The median total compensation for CEOs of companies similar in size to Boralex, with market caps between CA$2.8b and CA$8.9b, is around CA$4.6m.
The CEO of Boralex only received CA$2.1m in total compensation for the year ending December 2023. First impressions seem to indicate a compensation policy that is favourable to shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Boralex To Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Boralex's strong EPS growth. And that's not the only positive either. We have both insider buying and reasonable and remuneration to consider. On balance the message seems to be that this stock is worth looking at, at least for a while. You still need to take note of risks, for example - Boralex has 1 warning sign we think you should be aware of.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]
