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Here's Why I Think Rio Tinto Group (LON:RIO) Is An Interesting Stock

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In this article:
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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 Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like Rio Tinto Group (LON:RIO). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Rio Tinto Group

Rio Tinto Group's Improving Profits

In the last three years Rio Tinto Group's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like a wedge-tailed eagle on the wind, Rio Tinto Group's EPS soared from US$5.59 to US$8.03, in just one year. That's a impressive gain of 44%.

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. This approach makes Rio Tinto Group look pretty good, on balance; although revenue is flattish, EBIT margins improved from 29% to 33% in the last year. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

LSE:RIO Income Statement, November 26th 2019
LSE:RIO Income Statement, November 26th 2019

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Rio Tinto Group.

Are Rio Tinto Group Insiders Aligned With All Shareholders?

Since Rio Tinto Group has a market capitalization of UK£71b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. To be specific, they have US$28m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.04% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Does Rio Tinto Group Deserve A Spot On Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Rio Tinto Group's strong EPS growth. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Rio Tinto Group. You might benefit from giving it a glance today.

Although Rio Tinto Group certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.