With EPS Growth And More, Argo Investments (ASX:ARG) Makes An Interesting Case

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Argo Investments (ASX:ARG), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Argo Investments with the means to add long-term value to shareholders.

Check out our latest analysis for Argo Investments

How Fast Is Argo Investments Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. We can see that in the last three years Argo Investments grew its EPS by 6.2% per year. While that sort of growth rate isn't anything to write home about, it does show the business is growing.

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. Our analysis has highlighted that Argo Investments' revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. While we note Argo Investments achieved similar EBIT margins to last year, revenue grew by a solid 25% to AU$331m. That's a real positive.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

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

Are Argo Investments Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

With strong conviction, Argo Investments insiders have stood united by refusing to sell shares over the last year. But more importantly, Independent Non-Executive Director Lianne Buck spent AU$89k acquiring shares, doing so at an average price of AU$8.87. Purchases like this clue us in to the to the faith management has in the business' future.

Along with the insider buying, another encouraging sign for Argo Investments is that insiders, as a group, have a considerable shareholding. Holding AU$102m worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This would indicate that the goals of shareholders and management are one and the same.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Jason Beddow, is paid less than the median for similar sized companies. For companies with market capitalisations between AU$2.9b and AU$9.4b, like Argo Investments, the median CEO pay is around AU$3.5m.

The Argo Investments CEO received total compensation of just AU$1.2m in the year 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. It can also be a sign of a culture of integrity, in a broader sense.

Does Argo Investments Deserve A Spot On Your Watchlist?

One positive for Argo Investments is that it is growing EPS. That's nice to see. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Argo Investments , and understanding these should be part of your investment process.

Keen growth investors love to see insider buying. Thankfully, Argo Investments isn't the only one. You can see a a free list of them here.

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.