Should You Be Adding Grange Resources (ASX:GRR) To Your Watchlist Today?

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone 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 Grange Resources (ASX:GRR), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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 Grange Resources

How Quickly Is Grange Resources Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Impressively, Grange Resources has grown EPS by 18% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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. Grange Resources shareholders can take confidence from the fact that EBIT margins are up from 22% to 32%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

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.

Since Grange Resources is no giant, with a market capitalization of AU$324m, so you should definitely check its cash and debt before getting too excited about its prospects.

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. Because oftentimes, 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.

First things first; I didn't see insiders sell Grange Resources shares in the last year. But the really good news is that CEO, MD & Executive Director Honglin Zhao spent AU$293k buying stock stock, at an average price of around AU$0.23. Big buys like that give me a sense of opportunity; actions speak louder than words.

On top of the insider buying, it's good to see that Grange Resources insiders have a valuable investment in the business. To be specific, they have AU$27m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 8.5% of the company; visible skin in the game.

Should You Add Grange Resources To Your Watchlist?

You can't deny that Grange Resources has grown its earnings per share at a very impressive rate. That's attractive. Better still, insiders own a large chunk of the company and one has even been buying more shares. So I do think this is one stock worth watching. However, before you get too excited we've discovered 1 warning sign for Grange Resources that you should be aware of.

As a growth investor I do like to see insider buying. But Grange Resources isn't the only one. You can see a a free list of them here.

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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