Do Grainger's (LON:GRI) Earnings Warrant Your Attention?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Grainger (LON:GRI). 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 Grainger

How Fast Is Grainger Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Grainger has grown EPS by 16% per year. That's a good rate of growth, if it can be sustained.

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. Our analysis has highlighted that Grainger's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. EBIT margins for Grainger remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 12% to UK£279m. 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.

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

Are Grainger Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

With strong conviction, Grainger insiders have stood united by refusing to sell shares over the last year. But more importantly, Independent Non-Executive Director Robert William Wilkinson spent UK£51k acquiring shares, doing so at an average price of UK£2.18. It seems at least one insider has seen potential in the company's future - and they're willing to put money on the line.

Is Grainger Worth Keeping An Eye On?

As previously touched on, Grainger is a growing business, which is encouraging. It's not easy for business to grow EPS, but Grainger has shown the strengths to do just that. Despite there being a solitary insider adding to their holdings, it's enough to consider adding this to the watchlist. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Grainger (2 don't sit too well with us) you should be aware of.

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