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Is Now The Time To Put This Gold Stock On Your Watchlist? | The Mesh Report

Is Now The Time To Put This Gold Stock On Your Watchlist?

The Gold Enthusiast December 14, 2021 Comments Off on Is Now The Time To Put This Gold Stock On Your Watchlist?

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 as Warren Buffett has mused, ‘If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.’ When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Royal Gold (NASDAQ:RGLD), which has not only revenues, but also profits. While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. 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.

How Fast Is Royal Gold Growing Its Earnings Per Share?

In the last three years Royal Gold’s earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn’t tell us much. As a result, I’ll zoom in on growth over the last year, instead. Royal Gold boosted its trailing twelve month EPS from US$3.60 to US$4.05, in the last year. That’s a 13% gain; respectable growth in the broader scheme of things.

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 Royal Gold is growing revenues, and EBIT margins improved by 8.6 percentage points to 51%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Royal Gold.

Are Royal Gold Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$6.4b company like Royal Gold. But we are reassured by the fact they have invested in the company. To be specific, they have US$25m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that’s only about 0.4% of the company, it’s enough money to indicate alignment between the leaders of the business and ordinary shareholders.

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