Does RATIONAL (ETR:RAA) Deserve A Spot On Your Watchlist?
May 4, 2025
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 as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ 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.
If this kind of company isn’t your style, you like companies that generate revenue, and even earn profits, then you may well be interested in RATIONAL (ETR:RAA). 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.
Our free stock report includes 1 warning sign investors should be aware of before investing in RATIONAL. Read for free now.
The market is a voting machine in the short term, but a weighing machine in the long term, so you’d expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. Impressively, RATIONAL has grown EPS by 27% per year, compound, in the last three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
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. The good news is that RATIONAL is growing revenues, and EBIT margins improved by 2.1 percentage points to 27%, over the last year. Ticking those two boxes is a good sign of growth, in our book.
The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.
Check out our latest analysis for RATIONAL
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of RATIONAL’s forecast profits?
Owing to the size of RATIONAL, we wouldn’t expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. Indeed, they have a considerable amount of wealth invested in it, currently valued at €1.4b. Coming in at 16% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.
While it’s always good to see some strong conviction in the company from insiders through heavy investment, it’s also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations over €7.1b, like RATIONAL, the median CEO pay is around €4.7m.
RATIONAL offered total compensation worth €2.4m to its CEO in the year to December 2024. That is actually below the median for CEO’s of similarly 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 good governance, more generally.
If you believe that share price follows earnings per share you should definitely be delving further into RATIONAL’s strong EPS growth. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. This may only be a fast rundown, but the key takeaway is that RATIONAL is worth keeping an eye on. Don’t forget that there may still be risks. For instance, we’ve identified 1 warning sign for RATIONAL that you should be aware of.
Although RATIONAL certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of German companies that not only boast of strong growth but have strong insider backing.
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.
Terms and Privacy Policy
Search
RECENT PRESS RELEASES
Related Post
