Does Paragon Care (ASX:PGC) Deserve A Spot On Your Watchlist?

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. 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 Paragon Care (ASX:PGC). 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 Paragon Care

How Fast Is Paragon Care Growing Its Earnings Per Share?

In the last three years Paragon Care's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. To the delight of shareholders, Paragon Care's EPS soared from AU$0.01 to AU$0.015, over the last year. That's a impressive gain of 52%.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. The good news is that Paragon Care is growing revenues, and EBIT margins improved by 2.2 percentage points to 7.3%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Paragon Care isn't a huge company, given its market capitalisation of AU$217m. That makes it extra important to check on its balance sheet strength.

Are Paragon Care Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

With strong conviction, Paragon Care insiders have stood united by refusing to sell shares over the last year. But the bigger deal is that the company insider, Mark Hooper, paid AU$201k to buy shares at an average price of AU$0.22. Purchases like this clue us in to the to the faith management has in the business' future.

On top of the insider buying, it's good to see that Paragon Care insiders have a valuable investment in the business. Indeed, they hold AU$61m worth of its stock. This considerable investment should help drive long-term value in the business. That amounts to 28% of the company, demonstrating a degree of high-level alignment with shareholders.

Should You Add Paragon Care To Your Watchlist?

For growth investors, Paragon Care's raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant piece of the pie when it comes to the company's stock, and one has been buying more. These things considered, this is one stock worth watching. Still, you should learn about the 1 warning sign we've spotted with Paragon Care.

Keen growth investors love to see insider buying. Thankfully, Paragon Care isn't the only one. You can see a a curated list of Australian companies which have exhibited consistent growth accompanied by recent insider buying.

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.