Stock Analysis

With EPS Growth And More, Al Rajhi Company for Cooperative Insurance (TADAWUL:8230) Is Interesting

SASE:8230
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

So if you're like me, you might be more interested in profitable, growing companies, like Al Rajhi Company for Cooperative Insurance (TADAWUL:8230). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Al Rajhi Company for Cooperative Insurance

How Fast Is Al Rajhi Company for Cooperative Insurance Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years Al Rajhi Company for Cooperative Insurance grew its EPS by 11% per year. That's a pretty good rate, if the company can sustain it.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. 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 8.7% last year, but the silver lining is that EBIT margins improved from 5.3% to 12%. That's not ideal.

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
SASE:8230 Earnings and Revenue History June 11th 2021

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 Al Rajhi Company for Cooperative Insurance's balance sheet strength, before getting too excited.

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. So it is good to see that Al Rajhi Company for Cooperative Insurance insiders have a significant amount of capital invested in the stock. Indeed, they hold ر.س61m worth of its stock. That's a lot of money, and no small incentive to work hard. Even though that's only about 1.6% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add Al Rajhi Company for Cooperative Insurance To Your Watchlist?

As I already mentioned, Al Rajhi Company for Cooperative Insurance is a growing business, which is what I like to see. If that's not enough on its own, there is also the rather notable levels of insider ownership. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. 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.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like 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.

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

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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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