Insurance Australia Group (ASX:IAG) Ticks All The Boxes When It Comes To Earnings Growth

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Insurance Australia Group (ASX:IAG). 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.

Check out our latest analysis for Insurance Australia Group

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

Over the last three years, Insurance Australia Group has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. Insurance Australia Group's EPS has risen over the last 12 months, growing from AU$0.27 to AU$0.31. There's little doubt shareholders would be happy with that 16% gain.

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. We note that while EBIT margins have improved from 11% to 15%, the company has actually reported a fall in revenue by 8.0%. That's not a good look.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

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. Specifically, the CEO is paid quite reasonably for a company of this size. The median total compensation for CEOs of companies similar in size to Insurance Australia Group, with market caps over AU$12b, is around AU$6.1m.

The Insurance Australia Group CEO received total compensation of just AU$2.9m in the year to June 2023. First impressions seem to indicate a compensation policy that is favourable to shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Insurance Australia Group To Your Watchlist?

As previously touched on, Insurance Australia Group is a growing business, which is encouraging. And that's not all. We've also seen insiders buying stock, and noted modest executive pay. All things considered, Insurance Australia Group is certainly displaying its merits and is worthy of taking research to the next step. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Insurance Australia Group that you should be aware of.

Keen growth investors love to see insider buying. Thankfully, Insurance Australia Group isn't the only one. You can see a a curated list of Australian companies which have exhibited consistent growth accompanied by recent insider buying.

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.