Here's Why We Think RS Group (LON:RS1) Might Deserve Your Attention Today

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like RS Group (LON:RS1). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Check out our latest analysis for RS Group

How Quickly Is RS Group 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. Impressively, RS Group has grown EPS by 20% per year, compound, in the last three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. EBIT margins for RS Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 17% to UK£3.0b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of RS Group's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are RS Group 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, small purchases are not always indicative of conviction, and insiders don't always get it right.

The good news is that RS Group insiders spent a whopping UK£806k on stock in just one year, without so much as a single sale. The shareholders within the general public should find themselves expectant and certainly hopeful, that this large outlay signals prescient optimism for the business. Zooming in, we can see that the biggest insider purchase was by CEO & Executive Director Simon Pryce for UK£249k worth of shares, at about UK£8.04 per share.

Recent insider purchases of RS Group stock is not the only way management has kept the interests of the general public shareholders in mind. Namely, RS Group has a very reasonable level of CEO pay. For companies with market capitalisations between UK£1.6b and UK£5.1b, like RS Group, the median CEO pay is around UK£2.2m.

The RS Group CEO received total compensation of just UK£81k in the year to March 2023. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add RS Group To Your Watchlist?

For growth investors, RS Group's raw rate of earnings growth is a beacon in the night. But wait, it gets better. We have seen insider buying and the executive pay seems on the modest side of things. All in all, this stock is worth the time to delve deeper into the details. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if RS Group is trading on a high P/E or a low P/E, relative to its industry.

Keen growth investors love to see insider buying. Thankfully, RS Group 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. 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.