With EPS Growth And More, Hydro One (TSE:H) Makes An Interesting Case

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Hydro One (TSE:H). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

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Hydro One's Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Hydro One managed to grow EPS by 8.1% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Hydro One achieved similar EBIT margins to last year, revenue grew by a solid 6.0% to CA$8.9b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

View our latest analysis for Hydro One

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 Hydro One's future profits.

Are Hydro One 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, 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 Hydro One in the previous 12 months. So it's definitely nice that Independent Director Stacey Mowbray bought CA$31k worth of shares at an average price of around CA$44.03. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Hydro One.

Recent insider purchases of Hydro One stock is not the only way management has kept the interests of the general public shareholders in mind. Namely, Hydro One has a very reasonable level of CEO pay. Our analysis has discovered that the median total compensation for the CEOs of companies like Hydro One, with market caps over CA$11b, is about CA$10m.

Hydro One's CEO took home a total compensation package of CA$1.5m in the year prior to December 2024. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. 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.

Is Hydro One Worth Keeping An Eye On?

One positive for Hydro One is that it is growing EPS. That's nice to see. And that's not all. We've also seen insiders buying stock, and noted modest executive pay. The sum of all that, points to a quality business, and a genuine prospect for further research. However, before you get too excited we've discovered 2 warning signs for Hydro One (1 doesn't sit too well with us!) that you should be aware of.

The good news is that Hydro One is not the only stock with insider buying. Here's a list of small cap, undervalued companies in CA 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.