Here's Why I Think Reliance Worldwide (ASX:RWC) Might Deserve Your Attention Today

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Reliance Worldwide (ASX:RWC). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Reliance Worldwide

Reliance Worldwide's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. It certainly is nice to see that Reliance Worldwide has managed to grow EPS by 25% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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. Reliance Worldwide shareholders can take confidence from the fact that EBIT margins are up from 15% to 22%, and revenue is growing. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of Reliance Worldwide's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Reliance Worldwide Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Not only did Reliance Worldwide insiders refrain from selling stock during the year, but they also spent AU$189k buying it. That's nice to see, because it suggests insiders are optimistic. We also note that it was the Independent Non-Executive Director, Christine Bartlett, who made the biggest single acquisition, paying AU$58k for shares at about AU$5.84 each.

Is Reliance Worldwide Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Reliance Worldwide's strong EPS growth. Not only is that growth rate rather juicy, but the insider buying makes my mouth water. So on this analysis I believe Reliance Worldwide is probably worth spending some time on. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Reliance Worldwide.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Reliance Worldwide, you'll probably love this free list of growing companies that insiders are buying.

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

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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