Here's Why We Think RSL Electronics (TLV:RSEL) 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like RSL Electronics (TLV:RSEL), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for RSL Electronics

How Fast Is RSL Electronics Growing Its Earnings Per Share?

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's easy to see why many investors focus in on EPS growth. It's an outstanding feat for RSL Electronics to have grown EPS from ₪0.026 to ₪0.73 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. 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. The good news is that RSL Electronics is growing revenues, and EBIT margins improved by 17.0 percentage points to 21%, over the last year. 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.

RSL Electronics isn't a huge company, given its market capitalisation of ₪42m. That makes it extra important to check on its balance sheet strength.

Are RSL Electronics Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So we're pleased to report that RSL Electronics insiders own a meaningful share of the business. To be exact, company insiders hold 56% of the company, so their decisions have a significant impact on their investments. This makes it apparent they will be incentivised to plan for the long term - a positive for shareholders with a sit and hold strategy. Of course, RSL Electronics is a very small company, with a market cap of only ₪42m. So despite a large proportional holding, insiders only have ₪23m worth of stock. That's not a huge stake in absolute terms, but it should help keep insiders aligned with other shareholders.

Is RSL Electronics Worth Keeping An Eye On?

RSL Electronics' earnings per share growth have been climbing higher at an appreciable rate. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, RSL Electronics is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. It is worth noting though that we have found 2 warning signs for RSL Electronics that you need to take into consideration.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.