Is Now The Time To Put Grange Resources (ASX:GRR) On Your Watchlist?

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 Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In contrast to all that, I prefer to spend time on companies like Grange Resources (ASX:GRR), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.

View our latest analysis for Grange Resources

How Fast Is Grange Resources Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. I, for one, am blown away by the fact that Grange Resources has grown EPS by 50% per year, over the last three years. Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

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. The good news is that Grange Resources is growing revenues, and EBIT margins improved by 22.3 percentage points to 43%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

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.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Grange Resources Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

First things first; I didn't see insiders sell Grange Resources shares in the last year. Even better, though, is that the CEO, MD & Executive Director, Honglin Zhao, bought a whopping AU$293k worth of shares, paying about AU$0.23 per share, on average. To me that means at least one insider thinks that the company is doing well - and they are backing that view with cash.

The good news, alongside the insider buying, for Grange Resources bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold AU$49m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 8.5% of the company, demonstrating a degree of high-level alignment with shareholders.

Does Grange Resources Deserve A Spot On Your Watchlist?

Grange Resources's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest Grange Resources belongs on the top of your watchlist. However, before you get too excited we've discovered 2 warning signs for Grange Resources that you should be aware of.

The good news is that Grange Resources 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. 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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