Is Now The Time To Put RGC Resources (NASDAQ:RGCO) On Your Watchlist?
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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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in RGC Resources (NASDAQ:RGCO). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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 RGC Resources
RGC Resources's Earnings Per Share Are Growing.
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. RGC Resources managed to grow EPS by 13% per year, over three years. That's a pretty good rate, if the company can sustain it.
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). While we note RGC Resources's EBIT margins were flat over the last year, revenue grew by a solid 4.7% to US$68m. 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.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for RGC Resources?
Are RGC Resources Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
In the last twelve months RGC Resources insiders spent US$44k on stock; good news for shareholders. While this isn't much, we also note an absence of sales.
On top of the insider buying, it's good to see that RGC Resources insiders have a valuable investment in the business. Indeed, they hold US$14m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 6.3% of the company; visible skin in the game.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, John D'Orazio, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like RGC Resources with market caps between US$100m and US$400m is about US$1.1m.
RGC Resources offered total compensation worth US$801k to its CEO in the year to September 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.
Should You Add RGC Resources To Your Watchlist?
One positive for RGC Resources is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Now, you could try to make up your mind on RGC Resources by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
As a growth investor I do like to see insider buying. But RGC Resources isn't the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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.
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. Thank you for reading.
