If EPS Growth Is Important To You, NexgenRx (CVE:NXG) Presents An Opportunity

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 NexgenRx (CVE:NXG). 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.

Check out our latest analysis for NexgenRx

NexgenRx's Improving Profits

NexgenRx 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. Thus, it makes sense to focus on more recent growth rates, instead. Outstandingly, NexgenRx's EPS shot from CA$0.03 to CA$0.055, over the last year. It's not often a company can achieve year-on-year growth of 85%.

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. EBIT margins for NexgenRx remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 16% to CA$12m. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since NexgenRx is no giant, with a market capitalisation of CA$26m, you should definitely check its cash and debt before getting too excited about its prospects.

Are NexgenRx 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

In the last twelve months NexgenRx insiders spent CA$60k on stock; good news for shareholders. While this investment may be modest, it is great considering the lack of insider selling. It is also worth noting that it was company insider Paul Crossett who made the biggest single purchase, worth CA$9.9k, paying CA$0.37 per share.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for NexgenRx will reveal that insiders own a significant piece of the pie. In fact, they own 37% of the shares, making insiders a very influential shareholder group. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. Although, with NexgenRx being valued at CA$26m, this is a small company we're talking about. So this large proportion of shares owned by insiders only amounts to CA$9.8m. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Does NexgenRx Deserve A Spot On Your Watchlist?

NexgenRx's earnings have taken off in quite an impressive fashion. Just as heartening; insiders both own and are buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest NexgenRx belongs near the top of your watchlist. You still need to take note of risks, for example - NexgenRx has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of NexgenRx, you'll probably love this free list of growing companies that insiders are buying.

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.

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