U.S. Markets close in 6 hrs 30 mins
  • S&P 500

    4,502.11
    +15.65 (+0.35%)
     
  • Dow 30

    35,365.02
    +106.41 (+0.30%)
     
  • Nasdaq

    15,021.81
    +124.47 (+0.84%)
     
  • Russell 2000

    2,267.84
    +2.19 (+0.10%)
     
  • Gold

    1,781.50
    +15.80 (+0.89%)
     
  • EUR/USD

    1.1648
    +0.0030 (+0.2563%)
     
  • 10-Yr Bond

    1.6130
    +0.0290 (+1.83%)
     
  • Vix

    16.18
    -0.12 (-0.74%)
     
  • GBP/USD

    1.3811
    +0.0084 (+0.6118%)
     
  • USD/JPY

    114.2400
    -0.0720 (-0.0630%)
     
  • BTC-USD

    62,453.91
    +1,284.16 (+2.10%)
     
  • CMC Crypto 200

    1,455.41
    +3.77 (+0.26%)
     
  • FTSE 100

    7,203.73
    -0.10 (-0.00%)
     
  • Nikkei 225

    29,215.52
    +190.06 (+0.65%)
     

Does DRDGOLD (NYSE:DRD) Deserve A Spot On Your Watchlist?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

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 completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In contrast to all that, I prefer to spend time on companies like DRDGOLD (NYSE:DRD), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for DRDGOLD

DRDGOLD's Improving Profits

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. It is therefore awe-striking that DRDGOLD's EPS went from R1.21 to R8.25 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that DRDGOLD is growing revenues, and EBIT margins improved by 21.7 percentage points to 22%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
earnings-and-revenue-history

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are DRDGOLD Insiders Aligned With All Shareholders?

I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. I discovered that the median total compensation for the CEOs of companies like DRDGOLD with market caps between R17b and R54b is about R77m.

The DRDGOLD CEO received total compensation of just R13m in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Does DRDGOLD Deserve A Spot On Your Watchlist?

DRDGOLD's earnings per share have taken off like a rocket aimed right at the moon. With rocketing profits, its seems likely the business has a rosy future; and it may have hit an inflection point. Meanwhile, the very reasonable CEO pay reassures me a little, since it points to an absence profligacy. So DRDGOLD looks like it could be a good quality growth stock, at first glance. That's worth watching. We should say that we've discovered 3 warning signs for DRDGOLD that you should be aware of before investing here.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.