Here's Why Ratos (STO:RATO B) Has Caught The Eye Of Investors

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Ratos (STO:RATO B). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Ratos with the means to add long-term value to shareholders.

Check out our latest analysis for Ratos

Ratos' Improving Profits

Ratos has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Ratos' EPS has risen over the last 12 months, growing from kr1.74 to kr2.17. This amounts to a 25% gain; a figure that shareholders will be pleased to see.

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. Ratos maintained stable EBIT margins over the last year, all while growing revenue 18% to kr24b. That's progress.

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.

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

Are Ratos Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's pleasing to note that insiders spent kr155m buying Ratos shares, over the last year, without reporting any share sales whatsoever. The shareholders within the general public should find themselves expectant and certainly hopeful, that this large outlay signals prescient optimism for the business. We also note that it was the Chairman of the Board, Per-Olof Soderberg, who made the biggest single acquisition, paying kr53m for shares at about kr54.75 each.

The good news, alongside the insider buying, for Ratos bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at kr3.0b. Coming in at 20% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

Should You Add Ratos To Your Watchlist?

One important encouraging feature of Ratos is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. It is worth noting though that we have found 1 warning sign for Ratos that you need to take into consideration.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Ratos, you'll probably love this free list of growing companies that insiders are buying.

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.