Does Ricegrowers (ASX:SGLLV) Deserve A Spot On Your Watchlist?
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Ricegrowers (ASX:SGLLV). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
See our latest analysis for Ricegrowers
Ricegrowers' Earnings Per Share Are Growing
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Ricegrowers grew its EPS by 12% per year. That growth rate is fairly good, assuming the company can keep it up.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Ricegrowers shareholders can take confidence from the fact that EBIT margins are up from 2.1% to 4.9%, and revenue is growing. Both of which are great metrics to check off for potential growth.
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.
Since Ricegrowers is no giant, with a market capitalisation of AU$431m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Ricegrowers Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Ricegrowers insiders have a significant amount of capital invested in the stock. To be specific, they have AU$27m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 6.1% of the company, demonstrating a degree of high-level alignment with shareholders.
Should You Add Ricegrowers To Your Watchlist?
As previously touched on, Ricegrowers is a growing business, which is encouraging. If that's not enough on its own, there is also the rather notable levels of insider ownership. These two factors are a huge highlight for the company which should be a strong contender your watchlists. Before you take the next step you should know about the 2 warning signs for Ricegrowers (1 makes us a bit uncomfortable!) that we have uncovered.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.
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.
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