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I Ran A Stock Scan For Earnings Growth And Rocky Brands (NASDAQ:RCKY) Passed With Ease

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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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Rocky Brands (NASDAQ:RCKY). 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.

See our latest analysis for Rocky Brands

Rocky Brands's Improving Profits

In the last three years Rocky Brands'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. Rocky Brands boosted its trailing twelve month EPS from US$1.69 to US$2.08, in the last year. I doubt many would complain about that 23% gain.

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. While we note Rocky Brands's EBIT margins were flat over the last year, revenue grew by a solid 3.9% to US$261m. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

NasdaqGS:RCKY Income Statement, October 22nd 2019
NasdaqGS:RCKY Income Statement, October 22nd 2019

Since Rocky Brands is no giant, with a market capitalization of US$244m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Rocky Brands Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Rocky Brands insiders have a significant amount of capital invested in the stock. Indeed, they hold US$17m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 6.9% of the company, demonstrating a degree of high-level alignment with shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between US$100m and US$400m, like Rocky Brands, the median CEO pay is around US$1.2m.

The CEO of Rocky Brands only received US$575k in total compensation for the year ending December 2018. That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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. It can also be a sign of a culture of integrity, in a broader sense.

Does Rocky Brands Deserve A Spot On Your Watchlist?

One important encouraging feature of Rocky Brands is that it is growing profits. The fact that EPS is growing is a genuine positive for Rocky Brands, but the pretty picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. Now, you could try to make up your mind on Rocky Brands by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

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

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.