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 currently lacks a track record of revenue and 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.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like RLI (NYSE:RLI). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide RLI with the means to add long-term value to shareholders.

Our free stock report includes 2 warning signs investors should be aware of before investing in RLI. Read for free now.

How Fast Is RLI Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. RLI managed to grow EPS by 6.9% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Not all of RLI's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. While we note RLI achieved similar EBIT margins to last year, revenue grew by a solid 17% to US$1.8b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

View our latest analysis for RLI

Fortunately, we've got access to analyst forecasts of RLI's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are RLI 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.

Despite US$327k worth of sales, RLI insiders have overwhelmingly been buying the stock, spending US$950k on purchases in the last twelve months. This overall confidence in the company at current the valuation signals their optimism. We also note that it was the President, Craig Kliethermes, who made the biggest single acquisition, paying US$357k for shares at about US$71.35 each.

The good news, alongside the insider buying, for RLI bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$274m. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because on our analysis the CEO, Craig Kliethermes, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like RLI with market caps between US$4.0b and US$12b is about US$8.7m.

RLI's CEO took home a total compensation package worth US$6.6m in the year leading up 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add RLI To Your Watchlist?

As previously touched on, RLI is a growing business, which is encouraging. In addition, insiders have been busy adding to their sizeable holdings in the company. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for RLI (1 is a bit concerning) you should be aware of.

Keen growth investors love to see insider activity. Thankfully, RLI isn't the only one. You can see a a curated list of 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.