Here's Why I Think Algonquin Power & Utilities (TSE:AQN) Is An Interesting Stock

By
Simply Wall St
Published
November 30, 2021
TSX:AQN
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

So if you're like me, you might be more interested in profitable, growing companies, like Algonquin Power & Utilities (TSE:AQN). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Algonquin Power & Utilities

How Fast Is Algonquin Power & Utilities Growing Its Earnings Per Share?

In the last three years Algonquin Power & Utilities's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Over twelve months, Algonquin Power & Utilities increased its EPS from US$0.82 to US$0.87. That amounts to a small improvement of 6.3%.

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. Not all of Algonquin Power & Utilities's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. While Algonquin Power & Utilities did well to grow revenue over the last year, EBIT margins were dampened at the same time. So it seems the future my hold further growth, especially if EBIT margins can stabilize.

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.

earnings-and-revenue-history
TSX:AQN Earnings and Revenue History December 1st 2021

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Algonquin Power & Utilities?

Are Algonquin Power & Utilities Insiders Aligned With All Shareholders?

As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. I discovered that the median total compensation for the CEOs of companies like Algonquin Power & Utilities with market caps between US$4.0b and US$12b is about US$3.5m.

Algonquin Power & Utilities offered total compensation worth US$3.0m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. 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 Algonquin Power & Utilities Deserve A Spot On Your Watchlist?

One important encouraging feature of Algonquin Power & Utilities is that it is growing profits. Not only that, but the CEO is paid quite reasonably, which makes me feel more trusting of the board of directors. So all in all I think it's worth at least considering for your watchlist. Even so, be aware that Algonquin Power & Utilities is showing 4 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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