I Ran A Stock Scan For Earnings Growth And B. Riley Financial (NASDAQ:RILY) Passed With Ease

By
Simply Wall St
Published
March 22, 2021
NasdaqGM:RILY

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in B. Riley Financial (NASDAQ:RILY). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for B. Riley Financial

How Fast Is B. Riley Financial Growing Its Earnings Per Share?

In the last three years B. Riley Financial's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a firecracker arcing through the night sky, B. Riley Financial's EPS shot from US$3.04 to US$7.83, over the last year. Year on year growth of 158% is certainly a sight to behold. That could be a sign that the business has reached a true inflection point.

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. I note that B. Riley Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. B. Riley Financial maintained stable EBIT margins over the last year, all while growing revenue 40% to US$795m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGM:RILY Earnings and Revenue History March 22nd 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 B. Riley Financial's balance sheet strength, before getting too excited.

Are B. Riley Financial 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. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Although we did see some insider selling (worth -US$347k) this was overshadowed by a mountain of buying, totalling US$18m in just one year. I find this encouraging because it suggests they are optimistic about the B. Riley Financial's future. It is also worth noting that it was Chairman & Co-CEO Bryant Riley who made the biggest single purchase, worth US$4.6m, paying US$46.00 per share.

On top of the insider buying, it's good to see that B. Riley Financial insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$531m. Coming in at 35% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

Is B. Riley Financial Worth Keeping An Eye On?

B. Riley Financial's earnings have taken off like any random crypto-currency did, back in 2017. What's more insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe B. Riley Financial deserves timely attention. You should always think about risks though. Case in point, we've spotted 5 warning signs for B. Riley Financial you should be aware of, and 2 of them don't sit too well with us.

As a growth investor I do like to see insider buying. But B. Riley Financial isn't the only one. You can see a 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. 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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