Do Insurance Australia Group's (ASX:IAG) Earnings Warrant Your Attention?

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 Insurance Australia Group (ASX:IAG). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Insurance Australia Group with the means to add long-term value to shareholders.

Check out our latest analysis for Insurance Australia Group

How Fast Is Insurance Australia Group Growing Its Earnings Per Share?

Insurance Australia Group has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Insurance Australia Group's EPS has risen over the last 12 months, growing from AU$0.27 to AU$0.32. This amounts to a 18% gain; a figure that shareholders will be pleased to see.

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. Insurance Australia Group's EBIT margins have actually improved by 4.5 percentage points in the last year, to reach 15%, but, on the flip side, revenue was down 8.0%. While not disastrous, these figures could be better.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Insurance Australia Group?

Are Insurance Australia Group 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

It's nice to see that there have been no reports of any insiders selling shares in Insurance Australia Group in the previous 12 months. So it's definitely nice that Independent Non-Executive Director Wendy Thorpe bought AU$15k worth of shares at an average price of around AU$5.83. It seems that at least one insider is prepared to show the market there is potential within Insurance Australia Group.

Recent insider purchases of Insurance Australia Group stock is not the only way management has kept the interests of the general public shareholders in mind. Namely, Insurance Australia Group has a very reasonable level of CEO pay. For companies with market capitalisations over AU$12b, like Insurance Australia Group, the median CEO pay is around AU$6.2m.

The Insurance Australia Group CEO received total compensation of just AU$2.9m in the year to June 2023. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. 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.

Should You Add Insurance Australia Group To Your Watchlist?

One important encouraging feature of Insurance Australia Group is that it is growing profits. And there's more to Insurance Australia Group, with the insider buying and modest CEO pay being a great look for those with an eye on the company. If these factors aren't enough to secure Insurance Australia Group a spot on the watchlist, then it certainly warrants a closer look at the very least. Now, you could try to make up your mind on Insurance Australia Group by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

The good news is that Insurance Australia Group is not the only stock with insider buying. Here's a list of small cap, undervalued companies in AU 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com