Does B. Riley Financial (NASDAQ:RILY) Deserve A Spot On Your Watchlist?
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like B. Riley Financial (NASDAQ:RILY). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Check out our latest analysis for B. Riley Financial
How Fast Is B. Riley Financial Growing Its Earnings Per Share?
In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. You can imagine, then, that it almost knocked my socks off when I realized that B. Riley Financial grew its EPS from US$1.31 to US$19.73, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
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. Not all of B. Riley Financial's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. While we note B. Riley Financial's EBIT margins were flat over the last year, revenue grew by a solid 183% to US$1.4b. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are B. Riley Financial Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Although we did see some insider selling (worth -US$1.5m) this was overshadowed by a mountain of buying, totalling US$30m in just one year. This makes me even more interested in B. Riley Financial because it suggests that those who understand the company best, are optimistic. It is also worth noting that it was Chairman & Co-CEO Bryant Riley who made the biggest single purchase, worth US$8.2m, paying US$60.61 per share.
And the insider buying isn't the only sign of alignment between shareholders and the board, since B. Riley Financial insiders own more than a third of the company. Actually, with 35% of the company to their names, insiders are profoundly invested in the business. I'm always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. At the current share price, that insider holding is worth a whopping US$602m. Now that's what I call some serious skin in the game!
Does B. Riley Financial Deserve A Spot On Your Watchlist?
B. Riley Financial's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. What's more insiders own a significant stake in the company and have been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest B. Riley Financial belongs on the top of your watchlist. Don't forget that there may still be risks. For instance, we've identified 4 warning signs for B. Riley Financial (2 are a bit unpleasant) you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of B. Riley Financial, 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.
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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