Should You Be Adding Fortis (TSE:FTS) To Your Watchlist Today?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Fortis (TSE:FTS). 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.

See our latest analysis for Fortis

How Quickly Is Fortis Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Fortis managed to grow EPS by 6.2% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

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. Fortis' EBIT margins have actually improved by 2.9 percentage points in the last year, to reach 29%, but, on the flip side, revenue was down 2.1%. While not disastrous, these figures could be better.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

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 Fortis' future profits.

Are Fortis Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. 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.

The CA$454k worth of shares that insiders sold during the last 12 months pales in comparison to the CA$1.9m they spent on acquiring shares in the company. This adds to the interest in Fortis because it suggests that those who understand the company best, are optimistic. Zooming in, we can see that the biggest insider purchase was by President David Hutchens for CA$1.3m worth of shares, at about CA$52.34 per share.

The good news, alongside the insider buying, for Fortis bulls is that insiders (collectively) have a meaningful investment in the stock. As a matter of fact, their holding is valued at CA$31m. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.1% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is Fortis Worth Keeping An Eye On?

One positive for Fortis is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. What about risks? Every company has them, and we've spotted 2 warning signs for Fortis (of which 1 makes us a bit uncomfortable!) you should know about.

Keen growth investors love to see insider activity. Thankfully, Fortis isn't the only one. You can see a a curated list of Canadian companies which have exhibited consistent growth accompanied by high insider ownership.

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.