With EPS Growth And More, Puma Biotechnology (NASDAQ:PBYI) Makes An Interesting Case

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 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Puma Biotechnology (NASDAQ:PBYI). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

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Puma Biotechnology's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. To the delight of shareholders, Puma Biotechnology has achieved impressive annual EPS growth of 48%, compound, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

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. Unfortunately, Puma Biotechnology's revenue dropped 13% last year, but the silver lining is that EBIT margins improved from 14% to 16%. That's not a good look.

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.

See our latest analysis for Puma Biotechnology

Puma Biotechnology isn't a huge company, given its market capitalisation of US$272m. That makes it extra important to check on its balance sheet strength.

Are Puma Biotechnology Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. So it is good to see that Puma Biotechnology insiders have a significant amount of capital invested in the stock. To be specific, they have US$41m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 15% of the shares on issue for the business, an appreciable amount considering the market cap.

Does Puma Biotechnology Deserve A Spot On Your Watchlist?

Puma Biotechnology's earnings per share have been soaring, with growth rates sky high. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. Based on the sum of its parts, we definitely think its worth watching Puma Biotechnology very closely. Still, you should learn about the 3 warning signs we've spotted with Puma Biotechnology (including 1 which is potentially serious).

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by significant insider holdings.

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.