06-03-2025
Here's Why We Think RCL Foods (JSE:RCL) Is Well Worth Watching
The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like RCL Foods (JSE:RCL). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide RCL Foods with the means to add long-term value to shareholders.
See our latest analysis for RCL Foods
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. RCL Foods managed to grow EPS by 8.6% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.
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. RCL Foods' EBIT margins have actually improved by 4.5 percentage points in the last year, to reach 7.5%, but, on the flip side, revenue was down 32%. That falls short of ideal.
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.
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 RCL Foods' balance sheet strength, before getting too excited.
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
The first bit of good news is that no RCL Foods insiders reported share sales in the last twelve months. But the really good news is that CEO & Executive Director P. Cruickshank spent R6.3m buying stock, at an average price of around R9.22. It seems at least one insider thinks that the company is doing well - and they are backing that view with cash.
One positive for RCL Foods is that it is growing EPS. That's nice to see. It's not easy for business to grow EPS, but RCL Foods has shown the strengths to do just that. The icing on the cake is that an insider bought shares during the year; a point of interest for people who will want to keep a watchful eye on this stock. Still, you should learn about the 1 warning sign we've spotted with RCL Foods.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of RCL Foods, you'll probably love this curated collection of companies in ZA that have an attractive valuation alongside insider buying in the last three months.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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.
