Should You Be Adding Australian Foundation Investment (ASX:AFI) To Your Watchlist Today?

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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.

In contrast to all that, many investors prefer to focus on companies like Australian Foundation Investment (ASX:AFI), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Australian Foundation Investment

Australian Foundation Investment's Earnings Per Share Are Growing

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. We can see that in the last three years Australian Foundation Investment grew its EPS by 5.4% per year. While that sort of growth rate isn't anything to write home about, it does show the business is growing.

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. Not all of Australian Foundation Investment'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. EBIT margins for Australian Foundation Investment remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 25% to AU$410m. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Australian Foundation Investment Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Any way you look at it Australian Foundation Investment shareholders can gain quiet confidence from the fact that insiders shelled out AU$434k to buy stock, over the last year. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. We also note that it was the Independent Non Executive Director, Craig Drummond, who made the biggest single acquisition, paying AU$363k for shares at about AU$7.27 each.

Recent insider purchases of Australian Foundation Investment stock is not the only way management has kept the interests of the general public shareholders in mind. Namely, Australian Foundation Investment has a very reasonable level of CEO pay. Our analysis has discovered that the median total compensation for the CEOs of companies like Australian Foundation Investment with market caps between AU$6.1b and AU$18b is about AU$3.9m.

Australian Foundation Investment's CEO took home a total compensation package of AU$1.6m in the year prior to June 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. 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.

Does Australian Foundation Investment Deserve A Spot On Your Watchlist?

As previously touched on, Australian Foundation Investment is a growing business, which is encouraging. And there's more to love too, with modest CEO remuneration and insider buying interest continuing the positives for the company. If these factors aren't enough to secure Australian Foundation Investment a spot on the watchlist, then it certainly warrants a closer look at the very least. Even so, be aware that Australian Foundation Investment is showing 1 warning sign in our investment analysis , you should know about...

The good news is that Australian Foundation Investment is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

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.