Is Now The Time To Put RIT Capital Partners (LON:RCP) On Your Watchlist?

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 completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in RIT Capital Partners (LON:RCP). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

See our latest analysis for RIT Capital Partners

How Fast Is RIT Capital Partners Growing Its Earnings Per Share?

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. It is therefore awe-striking that RIT Capital Partners's EPS went from UK£0.18 to UK£8.10 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. I note that RIT Capital Partners's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. RIT Capital Partners shareholders can take confidence from the fact that EBIT margins are up from 56% to 96%, and revenue is growing. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are RIT Capital Partners Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Despite -UK£12k worth of sales, RIT Capital Partners insiders have overwhelmingly been buying the stock, spending UK£272k on purchases in the last twelve months. On balance, to me, this signals their optimism. Zooming in, we can see that the biggest insider purchase was by Jeremy Sillem for UK£252k worth of shares, at about UK£21.10 per share.

On top of the insider buying, it's good to see that RIT Capital Partners insiders have a valuable investment in the business. Notably, they have an enormous stake in the company, worth UK£139m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Is RIT Capital Partners Worth Keeping An Eye On?

RIT Capital Partners's earnings have taken off like any random crypto-currency did, back in 2017. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest RIT Capital Partners belongs on the top of your watchlist. What about risks? Every company has them, and we've spotted 1 warning sign for RIT Capital Partners you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of RIT Capital Partners, 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.

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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.