When it comes to the biggest of green flags for investing, there’s one that waves large and strong. That’s insider ownership. When insiders – the executives, founders and directors – own shares, their personal wealth is tied to the long-term outlook of the company. So these people aren’t making decisions without thinking about how it will benefit them personally.
Those decisions matter, whether it’s prioritizing profitability, sensible investments and acquisitions, or avoiding poor choices, it all boosts investor confidence. And when it comes to three Canadian stocks that are notable for insider ownership, goeasy (TSX:GSY), Aritzia (TSX:ATZ) and Enghouse Systems Limited (TSX:ENGH) stand out.
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GSY
First, we have goeasy stock, a consumer finance company that provides unsecured and secured loans, financing, and rent-to-own services to Canadians. It’s an attractive, high return option with growth-through-lending and great insider alignment. But there are both pros and cons to weigh here.
On the plus side, goeasy stock has maintained strong top-line and loan portfolio growth. In fact, it recently saw record originations and a 23% year-over-year loan book increase. Furthermore, the Canadian stock boasts high returns on equity and improving credit metrics. All while holding about 22% insider ownership!
What investors will need to watch here is high leverage and a large consumer credit book. This is exposed to economic downturns, with exposure to regulatory and reputational risk. Even so, the Canadian stock trades at a reasonable 16 times earnings, with a solid 3.5% dividend yield at writing.
ATZ
Next up we have Aritzia stock, a design-driven apparel retailer seeing massive growth through its ecommerce arm and U.S. expansion. It’s branded as everyday luxury wear and continues to grow fast. Overall, it’s a high-quality growth retailer with solid top-line momentum, though its shares appear a bit expensive right now. Still, let’s weigh the pros and cons.
Aritzia showed strong growth during recent earnings, with a 33% increase in revenue and 45% U.S. growth. Margins are expanding, with excellent e-commerce and retail performance. Meanwhile, earnings per share are growing while its brand and U.S. runway continue to surge.
Now, goeasy is at the lower end of insider ownership, so there is less managerial skin in the game. Shares also trade at a higher price-to-earnings and price-to-sales ratio, so future growth is likely priced in. Plus, fashion retail can suddenly reverse, so there’s definitely more volatility. So while it’s a top insider stock to consider, you’re paying the price for it.
ENGH
Finally, we have Enghouse, a software and services company selling communications, contact centre, and vertical market software. This creates large recurring revenue for its maintenance and software-as-a-service (SaaS) base. So let’s look at what investors get from this Canadian stock.
On the plus side, there is a solid 70% recurring revenue mix, with strong cash on hand at $271.6 million. What’s more, Enghouse has no external debt and an attractive dividend yield at 5.7%. Then there’s the significant 22% insider ownership, aligning management with shareholders. Even better? The Canadian stock looks reasonably priced compared to peers, with management cutting costs while still generating positive operating cash flow.
There are risks, however, as revenue and earnings are under pressure from last year, as management takes on restructuring. What’s more, the business is driven by acquisitions, so this can produce timing and integration risks. Yet overall, it’s a compelling income and value Canadian stock with strong insider alignment. Add in a clean balance sheet and it looks quite attractive for investors today.
Bottom line
Insider ownership is a strong sign when looking for Canadian stocks to invest in. But investors also need to dig into the value behind the company. In terms of these three Canadian stocks, goeasy is a growth play, with Aritzia holding a share price that includes future growth. Meanwhile, Enghouse looks defensive, offering value for investors. It will merely be up to you to take the next steps when adding these to your watchlist.
