Does Richelieu Hardware (TSE:RCH) Deserve A Spot On Your Watchlist?

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Richelieu Hardware (TSE:RCH), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Richelieu Hardware with the means to add long-term value to shareholders.

View our latest analysis for Richelieu Hardware

How Quickly Is Richelieu Hardware Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. It certainly is nice to see that Richelieu Hardware has managed to grow EPS by 34% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The good news is that Richelieu Hardware is growing revenues, and EBIT margins improved by 3.1 percentage points to 14%, over the last year. That's great to see, on both counts.

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

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Richelieu Hardware's future profits.

Are Richelieu Hardware Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Despite some Richelieu Hardware insiders disposing of some shares, we note that there was CA$237k more in buying interest among those who know the company best Shareholders who may have questioned insiders selling will find some reassurance in this fact. Zooming in, we can see that the biggest insider purchase was by CEO, President & Executive Director Richard Lord for CA$111k worth of shares, at about CA$36.84 per share.

Along with the insider buying, another encouraging sign for Richelieu Hardware is that insiders, as a group, have a considerable shareholding. Notably, they have an enviable stake in the company, worth CA$163m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. The cherry on top is that the CEO, Richard Lord is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations between CA$1.3b and CA$4.1b, like Richelieu Hardware, the median CEO pay is around CA$3.1m.

Richelieu Hardware's CEO took home a total compensation package worth CA$2.5m in the year leading up to November 2021. That comes in below the average for similar sized companies and seems pretty reasonable. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Is Richelieu Hardware Worth Keeping An Eye On?

You can't deny that Richelieu Hardware has grown its earnings per share at a very impressive rate. That's attractive. Furthermore, company insiders have been adding to their significant stake in the company. These things considered, this is one stock worth watching. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Richelieu Hardware (1 can't be ignored) you should be aware of.

The good news is that Richelieu Hardware 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. 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.