Stock Analysis

Does Al Rajhi Company for Cooperative Insurance (TADAWUL:8230) Deserve A Spot On Your Watchlist?

SASE:8230
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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 completely 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.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Al Rajhi Company for Cooperative Insurance (TADAWUL:8230). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 Al Rajhi Company for Cooperative Insurance

Al Rajhi Company for Cooperative Insurance's Improving Profits

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 no surprise that some investors are more inclined to invest in profitable businesses. Like a falcon taking flight, Al Rajhi Company for Cooperative Insurance's EPS soared from ر.س4.01 to ر.س5.20, over the last year. That's a commendable gain of 30%.

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. Not all of Al Rajhi Company for Cooperative Insurance's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Unfortunately, Al Rajhi Company for Cooperative Insurance's revenue dropped 4.5% last year, but the silver lining is that EBIT margins improved from 7.3% to 9.7%. That falls short of ideal.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
SASE:8230 Earnings and Revenue History October 1st 2021

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Al Rajhi Company for Cooperative Insurance 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 Al Rajhi Company for Cooperative Insurance shares worth a considerable sum. To be specific, they have ر.س66m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 1.8% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is Al Rajhi Company for Cooperative Insurance Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Al Rajhi Company for Cooperative Insurance's strong EPS growth. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. Of course, just because Al Rajhi Company for Cooperative Insurance is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Although Al Rajhi Company for Cooperative Insurance 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.

Valuation is complex, but we're helping make it simple.

Find out whether Al Rajhi Company for Cooperative Insurance 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.

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