Is Now The Time To Put Insurance Australia Group (ASX:IAG) On Your Watchlist?

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. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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). 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.

See our latest analysis for Insurance Australia Group

How Quickly Is Insurance Australia Group Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Insurance Australia Group has managed to grow EPS by 22% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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 shareholders can take confidence from the fact that EBIT margins are up from 8.4% to 17%, and revenue is growing. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Insurance Australia Group's future profits.

Are Insurance Australia Group 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. 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.

We haven't seen any insiders selling Insurance Australia Group shares, in the last year. 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. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.

It's commendable to see that insiders have been buying shares in Insurance Australia Group, but there is more evidence of shareholder friendly management. Namely, Insurance Australia Group has a very reasonable level of CEO pay. The median total compensation for CEOs of companies similar in size to Insurance Australia Group, with market caps between AU$6.1b and AU$18b, is around AU$3.9m.

Insurance Australia Group's CEO took home a total compensation package worth AU$2.9m in the year leading up to June 2023. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Is Insurance Australia Group Worth Keeping An Eye On?

For growth investors, Insurance Australia Group's raw rate of earnings growth is a beacon in the night. To add to the positives, Insurance Australia Group has recorded instances of insider buying and a modest executive pay to boot. All in all, this stock is worth the time to delve deeper into the details. Of course, just because Insurance Australia Group is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Keen growth investors love to see insider buying. Thankfully, Insurance Australia Group 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.