Stock Analysis

Here's Why Ratio Energies - Limited Partnership (TLV:RATI) Has Caught The Eye Of Investors

TASE:RATI
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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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 Ratio Energies - Limited Partnership (TLV:RATI), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Ratio Energies - Limited Partnership

Ratio Energies - Limited Partnership's Improving Profits

In the last three years Ratio Energies - Limited Partnership's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we'll zoom in on growth over the last year, instead. Impressively, Ratio Energies - Limited Partnership's EPS catapulted from US$0.033 to US$0.072, over the last year. Year on year growth of 117% is certainly a sight to behold. That could be a sign that the business has reached a true inflection point.

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 music to the ears of Ratio Energies - Limited Partnership shareholders is that EBIT margins have grown from 67% to 70% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
TASE:RATI Earnings and Revenue History August 1st 2022

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Ratio Energies - Limited Partnership's balance sheet strength, before getting too excited.

Are Ratio Energies - Limited Partnership Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Ratio Energies - Limited Partnership followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. To be specific, they have US$58m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 1.9% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Ratio Energies - Limited Partnership with market caps between US$400m and US$1.6b is about US$1.0m.

Ratio Energies - Limited Partnership's CEO only received compensation totalling US$190k in the year to December 2021. This total may indicate that the CEO is sacrificing take home pay for performance-based benefits, ensuring that their motivations are synonymous with strong company results. 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 Ratio Energies - Limited Partnership To Your Watchlist?

Ratio Energies - Limited Partnership's earnings have taken off in quite an impressive fashion. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The strong EPS improvement suggests the businesses is humming along. Ratio Energies - Limited Partnership certainly ticks a few boxes, so we think it's probably well worth further consideration. Before you take the next step you should know about the 1 warning sign for Ratio Energies - Limited Partnership that we have uncovered.

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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 Ratio Energies - Limited Partnership 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.