For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and 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.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Renewable Energy Group (NASDAQ:REGI). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
Check out our latest analysis for Renewable Energy Group
How Fast Is Renewable Energy Group Growing Its Earnings Per Share?
In business, though not in life, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. It is therefore awe-striking that Renewable Energy Group’s EPS went from US$1.10 to US$12.86 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. I note that Renewable Energy Group’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Renewable Energy Group shareholders can take confidence from the fact that EBIT margins are up from 2.7% to 20%, and revenue is growing. That’s great to see, on both counts.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
You don’t drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Renewable Energy Group’s future profits.
Are Renewable Energy Group 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. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
Despite -US$251.7k worth of sales, Renewable Energy Group insiders have overwhelmingly been buying the stock, spending US$569k on purchases in the last twelve months. You could argue that level of buying implies genuine confidence in the business. We also note that it was the Independent Director, Peter J. Harding, who made the biggest single acquisition, paying US$403k for shares at about US$24.39 each.
Along with the insider buying, another encouraging sign for Renewable Energy Group is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$28m worth of its stock. That’s a lot of money, and no small incentive to work hard. Despite being just 2.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Does Renewable Energy Group Deserve A Spot On Your Watchlist?
Renewable Energy Group’s earnings have taken off like any random crypto-currency did, back in 2017. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Renewable Energy Group deserves timely attention. You still need to take note of risks, for example – Renewable Energy Group has 4 warning signs (and 2 which are a bit concerning) we think you should know about.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Renewable Energy Group, 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. 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. Thank you for reading.