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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Ranger Energy Services (NYSE:RNGR). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
Ranger Energy Services' Improving Profits
Over the last three years, Ranger Energy Services has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Ranger Energy Services' EPS grew from US$0.52 to US$1.09, over the previous 12 months. It's a rarity to see 107% year-on-year growth like that. The best case scenario? That the business has hit a true inflection point.
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. The good news is that Ranger Energy Services is growing revenues, and EBIT margins improved by 16.1 percentage points to 5.4%, 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. To see the actual numbers, click on the chart.
Fortunately, we've got access to analyst forecasts of Ranger Energy Services' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Ranger Energy Services Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We note that Ranger Energy Services insiders spent US$113k on stock, over the last year; in contrast, we didn't see any selling. This is a good look for the company as it paints an optimistic picture for the future. Zooming in, we can see that the biggest insider purchase was by Independent Chairman of the Board William Austin for US$61k worth of shares, at about US$8.69 per share.
Recent insider purchases of Ranger Energy Services stock is not the only way management has kept the interests of the general public shareholders in mind. To be specific, the CEO is paid modestly when compared to company peers of the same size. Our analysis has discovered that the median total compensation for the CEOs of companies like Ranger Energy Services with market caps between US$100m and US$400m is about US$1.8m.
The Ranger Energy Services CEO received US$1.4m in compensation for the year ending December 2022. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add Ranger Energy Services To Your Watchlist?
Ranger Energy Services' earnings per share have been soaring, with growth rates sky high. The company can also boast of insider buying, and reasonable remuneration for the CEO. The strong EPS growth suggests Ranger Energy Services may be at an inflection point. If so, then its potential for further gains probably merit a spot on your watchlist. Still, you should learn about the 1 warning sign we've spotted with Ranger Energy Services.
Keen growth investors love to see insider buying. Thankfully, Ranger Energy Services isn't the only one. You can see a a free list of them here.
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.
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