For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
In contrast to all that, I prefer to spend time on companies like Al Rajhi Banking and Investment (TADAWUL:1120), which has not only revenues, but also profits. 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.
View our latest analysis for Al Rajhi Banking and Investment
Al Rajhi Banking and Investment’s Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. Al Rajhi Banking and Investment managed to grow EPS by 7.8% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. I note that Al Rajhi Banking and Investment’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Al Rajhi Banking and Investment maintained stable EBIT margins over the last year, all while growing revenue 11% to ر.س20b. That’s progress.
The chart below shows how the company’s bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Al Rajhi Banking and Investment’s forecast profits?
Are Al Rajhi Banking and Investment Insiders Aligned With All Shareholders?
Since Al Rajhi Banking and Investment has a market capitalization of ر.س282b, 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. Indeed, they have a glittering mountain of wealth invested in it, currently valued at ر.س6.6b. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.
Does Al Rajhi Banking and Investment Deserve A Spot On Your Watchlist?
One important encouraging feature of Al Rajhi Banking and Investment is that it is growing profits. If that’s not enough on its own, there is also the rather notable levels of insider ownership. The combination sparks joy for me, so I’d consider keeping the company on a watchlist. We don’t want to rain on the parade too much, but we did also find 1 warning sign for Al Rajhi Banking and Investment 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.
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