Here’s why we think Western Pacific Trust (CVE:WP) is worth watching

Like a puppy chasing its tail, some new investors are often looking for “the next big thing,” even if that means buying “history stocks” with no revenue, let alone profit. Unfortunately, high-risk investments are often unlikely to ever return, and many investors pay a price to learn their lesson.

If, on the other hand, you like businesses that generate revenue and even profit, then you might be interested in Western Pacific Trust (CVE: WP). Even if stocks are fully valued today, most capitalists would recognize its earnings as a demonstration of consistent value generation. Conversely, a loss-making business has yet to prove itself with profits, and eventually the sweet milk of outside capital can turn sour.

Check out our latest analysis for Western Pacific Trust

How fast is Western Pacific Trust growing earnings per share?

In a capitalist society, capital drives out profits, which means stock prices tend to rise with earnings per share (EPS). So, like a ray of sunshine through a hole in the clouds, improved EPS is considered a good sign. It is therefore impressive that Western Pacific Trust’s EPS rose from C$0.00045 to C$0.031 in just one year. When you see profits growing this quickly, it often means good things for the business.

I like to take a look at earnings before interest and tax margins (EBIT), as well as revenue growth, to get another view of the quality of the company’s growth. I note that the revenues of Western Pacific Trust operations was lower than its turnover over the last twelve months, which could distort my analysis of its margins. The good news is that Western Pacific Trust is growing revenue and EBIT margins have improved by 2.5 percentage points to 11% from last year. Checking those two boxes is a good sign of growth, in my book.

You can check the company’s revenue and profit growth trend in the table below. To see the actual numbers, click on the chart.

TSXV:WP Earnings & Revenue History April 8, 2022

Western Pacific Trust is not a big company, given its market capitalization of C$6.3 million. It is therefore very important to check the strength of its balance sheet.

Are Western Pacific Trust insiders aligned with all shareholders?

Many consider high insider shareholding to be a strong sign of alignment between a company’s executives and ordinary shareholders. So, as you can imagine, the fact that Western Pacific Trust insiders hold a significant number of shares certainly appeals to me. In fact, with 48% of the company to their name, insiders are deeply invested in the company. I take comfort in this type of alignment, as it suggests that the company will be run for the benefit of shareholders. Valued at just C$6.3 million, Western Pacific Trust is really small for a publicly traded company. Thus, despite a large proportionate stake, insiders only have C$3.0 million in shares. It may not be a huge sum, but it should be enough to motivate insiders!

It means a lot to see insiders invested in the company, but I wonder if the compensation policies are shareholder-friendly. Well, based on the CEO’s salary, I’d say they are indeed. I found that the median total compensation for CEOs of companies like Western Pacific Trust with a market capitalization below C$252 million was around C$201,000.

Western Pacific Trust offered total compensation worth C$136,000 to its CEO during the year at . That seems pretty reasonable, especially given that it’s below the median for companies of a similar size. CEO pay levels aren’t the most important metric for investors, but when pay is modest, it promotes better alignment between the CEO and ordinary shareholders. I would also say that reasonable levels of compensation attest to good decision-making more generally.

Is Western Pacific Trust worth watching?

Western Pacific Trust’s revenue took off like any random cryptocurrency, in 2017. The icing on the cake is that insiders own a bucket of stock, and the CEO salary really seems quite reasonable. The sharp rise in earnings could signal good business momentum. Strong growth can make for big winners, so I think Western Pacific Trust deserves careful consideration. However, you should inquire about the 4 warning signs we scouted with Western Pacific Trust.

Although Western Pacific Trust looks good to me, I would prefer insiders buying back shares. If you also like to see insiders buy, then this free list of growing companies that insiders are buying might be exactly what you’re looking for.

Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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