Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Ramelius Resources (ASX:RMS). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Fast Is Ramelius Resources Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. We can see that in the last three years Ramelius Resources grew its EPS by 5.8% per year. While that sort of growth rate isn't amazing, it does show the business is growing.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Unfortunately, Ramelius Resources's revenue dropped 13% last year, but the silver lining is that EBIT margins improved from 7.0% to 16%. That's not ideal.
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.
Fortunately, we've got access to analyst forecasts of Ramelius Resources's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Ramelius Resources Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Ramelius Resources shares worth a considerable sum. To be specific, they have AU$32m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 1.8% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like Ramelius Resources with market caps between AU$1.4b and AU$4.5b is about AU$2.0m.
The Ramelius Resources CEO received AU$999k in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. 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. I'd also argue reasonable pay levels attest to good decision making more generally.
Is Ramelius Resources Worth Keeping An Eye On?
As I already mentioned, Ramelius Resources is a growing business, which is what I like to see. Earnings growth might be the main game for Ramelius Resources, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. We don't want to rain on the parade too much, but we did also find 2 warning signs for Ramelius Resources that you need to be mindful of.
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 email@example.com.