With EPS Growth And More, Richelieu Hardware (TSE:RCH) Makes An Interesting Case
The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Richelieu Hardware (TSE:RCH). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
Check out our latest analysis for Richelieu Hardware
How Quickly Is Richelieu Hardware Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. Shareholders will be happy to know that Richelieu Hardware's EPS has grown 34% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Richelieu Hardware maintained stable EBIT margins over the last year, all while growing revenue 19% to CA$1.8b. That's a real positive.
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 Richelieu Hardware's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Richelieu Hardware Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, 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.
Over the last 12 months Richelieu Hardware insiders spent CA$186k more buying shares than they received from selling them. Although some people may hesitate due to the share sales, the fact that insiders bought more than they sold, is a positive thing to note. Zooming in, we can see that the biggest insider purchase was by CEO, President & Executive Director Richard Lord for CA$100k worth of shares, at about CA$35.00 per share.
The good news, alongside the insider buying, for Richelieu Hardware bulls is that insiders (collectively) have a meaningful investment in the stock. We note that their impressive stake in the company is worth CA$198m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Richard Lord, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to Richelieu Hardware, with market caps between CA$1.4b and CA$4.3b, is around CA$3.3m.
Richelieu Hardware's CEO took home a total compensation package worth CA$2.5m in the year leading up to November 2022. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is Richelieu Hardware Worth Keeping An Eye On?
If you believe that share price follows earnings per share you should definitely be delving further into Richelieu Hardware's strong EPS growth. Furthermore, company insiders have been adding to their significant stake in the company. Astute investors will want to keep this stock on watch. Even so, be aware that Richelieu Hardware is showing 3 warning signs in our investment analysis , and 2 of those don't sit too well with us...
The good news is that Richelieu Hardware is not the only growth stock with insider buying. Here's a list of them... 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
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