Here's Why RLI (NYSE:RLI) Has Caught The Eye Of Investors

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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. 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 RLI (NYSE:RLI). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for RLI

RLI's Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years RLI grew its EPS by 16% per year. That growth rate is fairly good, assuming the company can keep it up.

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. It's noted that RLI's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. The good news is that RLI is growing revenues, and EBIT margins improved by 5.7 percentage points to 29%, over the last year. Both of which are great metrics to check off for potential growth.

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.

Fortunately, we've got access to analyst forecasts of RLI's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are RLI Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$7.1b company like RLI. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth US$277m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations between US$4.0b and US$12b, like RLI, the median CEO pay is around US$7.8m.

The RLI CEO received US$5.2m in compensation for the year ending December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does RLI Deserve A Spot On Your Watchlist?

As previously touched on, RLI is a growing business, which is encouraging. The growth of EPS may be the eye-catching headline for RLI, but there's more to bring joy for shareholders. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. You should always think about risks though. Case in point, we've spotted 1 warning sign for RLI you should be aware of.

Although RLI certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of companies that not only boast of strong growth but have strong insider backing.

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.