Stock Analysis

If EPS Growth Is Important To You, Ringkjøbing Landbobank (CPH:RILBA) Presents An Opportunity

CPSE:RILBA
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Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Ringkjøbing Landbobank (CPH:RILBA). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Ringkjøbing Landbobank

Ringkjøbing Landbobank's Earnings Per Share Are Growing

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. Shareholders will be happy to know that Ringkjøbing Landbobank's EPS has grown 30% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. It's noted that Ringkjøbing Landbobank's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for Ringkjøbing Landbobank remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 25% to kr.3.2b. That's a real positive.

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.

earnings-and-revenue-history
CPSE:RILBA Earnings and Revenue History September 14th 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 Ringkjøbing Landbobank?

Are Ringkjøbing Landbobank Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.

Even though some insiders sold down their holdings, their actions speak louder than words with kr.1.9m more invested than sold by people who know they company best. This overall confidence in the company at current the valuation signals their optimism. We also note that it was the Independent Chairman, Martin Pedersen, who made the biggest single acquisition, paying kr.1.9m for shares at about kr.962 each.

Along with the insider buying, another encouraging sign for Ringkjøbing Landbobank is that insiders, as a group, have a considerable shareholding. Indeed, they hold kr.134m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. 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.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, John Fisker is paid comparatively modestly to CEOs at similar sized companies. The median total compensation for CEOs of companies similar in size to Ringkjøbing Landbobank, with market caps between kr.14b and kr.44b, is around kr.14m.

Ringkjøbing Landbobank offered total compensation worth kr.7.8m to its CEO in the year to December 2022. That is actually below the median for CEO's of similarly sized companies. 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 Ringkjøbing Landbobank To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Ringkjøbing Landbobank's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. Astute investors will want to keep this stock on watch. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Ringkjøbing Landbobank. You might benefit from giving it a glance today.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Ringkjøbing Landbobank, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we're helping make it simple.

Find out whether Ringkjøbing Landbobank is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.