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. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Rolls-Royce Holdings (LON:RR.). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
Over the last three years, Rolls-Royce Holdings 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 previous twelve months, Rolls-Royce Holdings' EPS has risen from UK£0.29 to UK£0.30. That amounts to a small improvement of 4.0%.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Rolls-Royce Holdings maintained stable EBIT margins over the last year, all while growing revenue 15% to UK£19b. That's progress.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
LSE:RR. Earnings and Revenue History March 22nd 2025
Are Rolls-Royce Holdings 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.
Shareholders in Rolls-Royce Holdings will be more than happy to see insiders committing themselves to the company, spending UK£213k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. Zooming in, we can see that the biggest insider purchase was by Independent Non-Executive Director Wendy Mars for UK£50k worth of shares, at about UK£4.96 per share.
On top of the insider buying, it's good to see that Rolls-Royce Holdings insiders have a valuable investment in the business. To be specific, they have UK£16m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.02% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. The cherry on top is that the CEO, M. Erginbilgic is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations over UK£6.2b, like Rolls-Royce Holdings, the median CEO pay is around UK£5.1m.
Rolls-Royce Holdings' CEO took home a total compensation package worth UK£4.1m in the year leading up to December 2024. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Rolls-Royce Holdings To Your Watchlist?
One positive for Rolls-Royce Holdings 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. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. Still, you should learn about the 2 warning signs we've spotted with Rolls-Royce Holdings (including 1 which is concerning).
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) simplywallst.com.
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.
