Stock Analysis

Should You Be Adding Raia Drogasil (BVMF:RADL3) To Your Watchlist Today?

BOVESPA:RADL3
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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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 Raia Drogasil (BVMF:RADL3). 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.

See our latest analysis for Raia Drogasil

How Quickly Is Raia Drogasil Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Raia Drogasil has grown EPS by 13% per year. That's a pretty good rate, if the company can sustain it.

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. While we note Raia Drogasil achieved similar EBIT margins to last year, revenue grew by a solid 20% to R$32b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
BOVESPA:RADL3 Earnings and Revenue History August 19th 2023

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 Raia Drogasil?

Are Raia Drogasil Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a R$46b company like Raia Drogasil. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Indeed, they have a considerable amount of wealth invested in it, currently valued at R$8.9b. This totals to 20% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

Should You Add Raia Drogasil To Your Watchlist?

One positive for Raia Drogasil is that it is growing EPS. That's nice to see. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. The combination definitely favoured by investors so consider keeping the company on a watchlist. Of course, just because Raia Drogasil is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Although Raia Drogasil 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.