If You Like EPS Growth Then Check Out Ritchie Bros. Auctioneers (NYSE:RBA) Before It's Too Late

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. 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 Ritchie Bros. Auctioneers (NYSE:RBA). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 Ritchie Bros. Auctioneers

How Fast Is Ritchie Bros. Auctioneers Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. It certainly is nice to see that Ritchie Bros. Auctioneers has managed to grow EPS by 34% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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. Ritchie Bros. Auctioneers maintained stable EBIT margins over the last year, all while growing revenue 3.0% to US$1.5b. That's progress.

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 Ritchie Bros. Auctioneers.

Are Ritchie Bros. Auctioneers Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Insider selling of Ritchie Bros. Auctioneers shares was insignificant compared to the one buyer, over the last twelve months. Specifically the CEO & Director, Ann Fandozzi, spent US$999k, paying about US$52.25 per share. To me, that's probably a sign of conviction.

Does Ritchie Bros. Auctioneers Deserve A Spot On Your Watchlist?

You can't deny that Ritchie Bros. Auctioneers has grown its earnings per share at a very impressive rate. That's attractive. The growth rate whets my appetite for research, and the insider buying only increases my interest in the stock. To put it succinctly; Ritchie Bros. Auctioneers is a strong candidate for your watchlist. However, before you get too excited we've discovered 3 warning signs for Ritchie Bros. Auctioneers that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Ritchie Bros. Auctioneers, 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.