We Ran A Stock Scan For Earnings Growth And Al Yamamah Steel Industries (TADAWUL:1304) Passed With Ease

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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Al Yamamah Steel Industries (TADAWUL:1304). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Al Yamamah Steel Industries

Al Yamamah Steel Industries' Improving Profits

In the last three years Al Yamamah Steel Industries' 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. Thus, it makes sense to focus on more recent growth rates, instead. To the delight of shareholders, Al Yamamah Steel Industries' EPS soared from ر.س2.54 to ر.س3.43, over the last year. That's a impressive gain of 35%.

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. Al Yamamah Steel Industries' EBIT margins have actually improved by 3.2 percentage points in the last year, to reach 14%, but, on the flip side, revenue was down 6.4%. While not disastrous, these figures could be better.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

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

Are Al Yamamah Steel Industries Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Al Yamamah Steel Industries 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 ر.س151m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 8.2% of the company; visible skin in the game.

Is Al Yamamah Steel Industries Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Al Yamamah Steel Industries' strong EPS growth. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Al Yamamah Steel Industries (1 shouldn't be ignored) you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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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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.