Here's Why Lynas Rare Earths (ASX:LYC) Has Caught The Eye Of Investors

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Lynas Rare Earths (ASX:LYC), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

View our latest analysis for Lynas Rare Earths

How Fast Is Lynas Rare Earths Growing Its Earnings Per Share?

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. Which is why EPS growth is looked upon so favourably. It's an outstanding feat for Lynas Rare Earths to have grown EPS from AU$0.18 to AU$0.60 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. Could this be a sign that the business has reached an inflection point?

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 Lynas Rare Earths is growing revenues, and EBIT margins improved by 25.1 percentage points to 57%, over the last year. 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.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Lynas Rare Earths?

Are Lynas Rare Earths Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a AU$7.5b company like Lynas Rare Earths. But we are reassured by the fact they have invested in the company. As a matter of fact, their holding is valued at AU$41m. That's a lot of money, and no small incentive to work hard. Even though that's only about 0.5% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Lynas Rare Earths with market caps between AU$5.9b and AU$18b is about AU$4.1m.

The Lynas Rare Earths CEO received AU$3.2m in compensation for the year ending June 2022. That comes in below the average for similar sized companies and seems pretty reasonable. 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.

Should You Add Lynas Rare Earths To Your Watchlist?

Lynas Rare Earths' earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Big growth can make big winners, so the writing on the wall tells us that Lynas Rare Earths is worth considering carefully. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Lynas Rare Earths that you should be aware of.

Although Lynas Rare Earths certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.