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If You Like EPS Growth Then Check Out Rio Tinto Group (LON:RIO) Before It's Too Late

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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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Rio Tinto Group (LON:RIO). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

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View our latest analysis for Rio Tinto Group

Rio Tinto Group's Improving Profits

Over the last three years, Rio Tinto Group has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a wedge-tailed eagle on the wind, Rio Tinto Group's EPS soared from US$4.90 to US$7.93, in just one year. That's a impressive gain of 62%.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. It seems Rio Tinto Group is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not bad, but it doesn't point to ongoing future growth, either.

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.

LSE:RIO Income Statement, May 29th 2019
LSE:RIO Income Statement, May 29th 2019

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Rio Tinto Group?

Are Rio Tinto Group Insiders Aligned With All Shareholders?

Since Rio Tinto Group has a market capitalization of US$81b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. To be specific, they have US$30m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.04% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Is Rio Tinto Group Worth Keeping An Eye On?

For growth investors like me, Rio Tinto Group's raw rate of earnings growth is a beacon in the night. Further, the high level of insider buying impresses me, and suggests that I'm not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Rio Tinto Group. You might benefit from giving it a glance today.

Although Rio Tinto Group certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.