Here's Why I Think Al Rajhi Banking and Investment (TADAWUL:1120) Might Deserve Your Attention Today

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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 Al Rajhi Banking and Investment (TADAWUL:1120). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for Al Rajhi Banking and Investment

How Fast Is Al Rajhi Banking and Investment Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Who among us would not applaud Al Rajhi Banking and Investment's stratospheric annual EPS growth of 57%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. I note that Al Rajhi Banking and Investment's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Al Rajhi Banking and Investment's EBIT margins were flat over the last year, revenue grew by a solid 24% to ر.س24b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Al Rajhi Banking and Investment.

Are Al Rajhi Banking and Investment Insiders Aligned With All Shareholders?

Since Al Rajhi Banking and Investment has a market capitalization of ر.س374b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth ر.س9.0b. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

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 over ر.س30b, like Al Rajhi Banking and Investment, the median CEO pay is around ر.س490k.

The Al Rajhi Banking and Investment CEO received total compensation of only ر.س180k in the year to . This could be considered a token amount, and indicates that the company does not need to use payment to motivate the CEO - that is often a good sign. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Al Rajhi Banking and Investment To Your Watchlist?

Al Rajhi Banking and Investment's earnings per share have taken off like a rocket aimed right at the moon. 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. Big growth can make big winners, so I do think Al Rajhi Banking and Investment is worth considering carefully. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Al Rajhi Banking and Investment (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

Although Al Rajhi Banking and Investment certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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.