It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Rentokil Initial (LON:RTO). 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.

See our latest analysis for Rentokil Initial

Rentokil Initial's Improving Profits

Even modest earnings per share growth (EPS) can create meaningful value, when it is sustained reliably from year to year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Rentokil Initial boosted its trailing twelve month EPS from UK£0.13 to UK£0.16, in the last year. There's little doubt shareholders would be happy with that 24% gain.

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. EBIT margins for Rentokil Initial remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 12% to UK£5.4b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Rentokil Initial's future profits.

Are Rentokil Initial Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's nice to see that there have been no reports of any insiders selling shares in Rentokil Initial in the previous 12 months. So it's definitely nice that Independent Non-Executive Director Sally Kate Johnson bought UK£12k worth of shares at an average price of around UK£4.62. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Rentokil Initial.

It's reassuring that Rentokil Initial insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. Namely, Rentokil Initial has a very reasonable level of CEO pay. The median total compensation for CEOs of companies similar in size to Rentokil Initial, with market caps over UK£6.4b, is around UK£4.6m.

Rentokil Initial's CEO took home a total compensation package worth UK£3.3m in the year leading up to December 2023. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Is Rentokil Initial Worth Keeping An Eye On?

One important encouraging feature of Rentokil Initial is that it is growing profits. And there's more to Rentokil Initial, with the insider buying and modest CEO pay being a great look for those with an eye on the company. The sum of all that, points to a quality business, and a genuine prospect for further research. We don't want to rain on the parade too much, but we did also find 2 warning signs for Rentokil Initial (1 shouldn't be ignored!) that you need to be mindful of.

Keen growth investors love to see insider activity. Thankfully, Rentokil Initial isn't the only one. You can see a a curated list of British companies which have exhibited consistent growth accompanied by high insider ownership.

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.