Should You Be Adding Safari Investments RSA (JSE:SAR) To Your Watchlist Today?

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 Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In contrast to all that, I prefer to spend time on companies like Safari Investments RSA (JSE:SAR), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Safari Investments RSA

How Quickly Is Safari Investments RSA Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. Over the last three years, Safari Investments RSA has grown EPS by 14% per year. That's a pretty good rate, if the company can sustain it.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that Safari Investments RSA's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Safari Investments RSA maintained stable EBIT margins over the last year, all while growing revenue 13% to R391m. That's a real positive.

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 Safari Investments RSA is no giant, with a market capitalization of R1.4b, so you should definitely check its cash and debt before getting too excited about its prospects.

Are Safari Investments RSA 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. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's good to see Safari Investments RSA insiders walking the walk, by spending R4.2m on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. We also note that it was the Non-Executive Chairman, Steven Herring, who made the biggest single acquisition, paying R4.2m for shares at about R5.23 each.

On top of the insider buying, it's good to see that Safari Investments RSA insiders have a valuable investment in the business. To be specific, they have R360m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 26% of the company; visible skin in the game.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Dirk Engelbrecht is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Safari Investments RSA with market caps under R2.9b is about R4.2m.

Safari Investments RSA offered total compensation worth R2.9m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Does Safari Investments RSA Deserve A Spot On Your Watchlist?

One positive for Safari Investments RSA is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. What about risks? Every company has them, and we've spotted 4 warning signs for Safari Investments RSA (of which 1 shouldn't be ignored!) you should know about.

The good news is that Safari Investments RSA 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.