Here's Why Rave Restaurant Group (NASDAQ:RAVE) Has Caught The Eye Of Investors

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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 Rave Restaurant Group (NASDAQ:RAVE). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

View our latest analysis for Rave Restaurant Group

How Fast Is Rave Restaurant Group Growing Its Earnings Per Share?

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. Which is why EPS growth is looked upon so favourably. It is awe-striking that Rave Restaurant Group's EPS went from US$0.12 to US$0.55 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. On the revenue front, Rave Restaurant Group has done well over the past year, growing revenue by 14% to US$12m but EBIT margin figures were less stellar, seeing a decline over the last 12 months. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

Since Rave Restaurant Group is no giant, with a market capitalisation of US$32m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Rave Restaurant Group Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.

The good news for Rave Restaurant Group shareholders is that no insiders reported selling shares in the last year. Add in the fact that Brandon Solano, the President of the company, paid US$39k for shares at around US$1.57 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.

Is Rave Restaurant Group Worth Keeping An Eye On?

Rave Restaurant Group's earnings per share have been soaring, with growth rates sky high. Growth-minded people will be intrigued by the incredible movement in EPS growth. And indeed, it could be a sign that the business is at an inflection point. If this these factors intrigue you, then an addition of Rave Restaurant Group to your watchlist won't go amiss. Still, you should learn about the 2 warning signs we've spotted with Rave Restaurant Group.

The good news is that Rave Restaurant Group is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

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.