Here's Why I Think Rekah Pharmaceutical Industry (TLV:REKA) 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 completely lacks a track record of revenue and profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

So if you're like me, you might be more interested in profitable, growing companies, like Rekah Pharmaceutical Industry (TLV:REKA). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Rekah Pharmaceutical Industry

How Fast Is Rekah Pharmaceutical Industry 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 a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Rekah Pharmaceutical Industry's EPS went from ₪0.25 to ₪0.95 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. While we note Rekah Pharmaceutical Industry's EBIT margins were flat over the last year, revenue grew by a solid 35% to ₪265m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Since Rekah Pharmaceutical Industry is no giant, with a market capitalization of ₪277m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Rekah Pharmaceutical Industry Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own Rekah Pharmaceutical Industry shares worth a considerable sum. To be specific, they have ₪84m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 30% of the company, demonstrating a degree of high-level alignment with shareholders.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations under ₪657m, like Rekah Pharmaceutical Industry, the median CEO pay is around ₪1.4m.

Rekah Pharmaceutical Industry offered total compensation worth ₪832k to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Should You Add Rekah Pharmaceutical Industry To Your Watchlist?

Rekah Pharmaceutical Industry's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so I do think Rekah Pharmaceutical Industry is worth considering carefully. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Rekah Pharmaceutical Industry (at least 1 which is significant) , and understanding them should be part of your investment process.

You can invest in 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.

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This article by Simply Wall St is general in nature. 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.
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