Should You Be Adding ABB (VTX:ABBN) To Your Watchlist Today?

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like ABB (VTX:ABBN), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide ABB with the means to add long-term value to shareholders.

See our latest analysis for ABB

ABB's Improving Profits

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. Which is why EPS growth is looked upon so favourably. Commendations have to be given in seeing that ABB grew its EPS from US$0.43 to US$2.29, in one short year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note ABB achieved similar EBIT margins to last year, revenue grew by a solid 2.5% to US$29b. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed 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 ABB?

Are ABB 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.

We do note that, in the last year, insiders sold US$6.7m worth of shares. But that's far less than the US$9.0m insiders spent purchasing stock. This bodes well for ABB as it highlights the fact that those who are important to the company having a lot of faith in its future. It is also worth noting that it was Chief Executive Officer Bjorn Klas Rosengren who made the biggest single purchase, worth CHF2.7m, paying CHF32.14 per share.

Along with the insider buying, another encouraging sign for ABB is that insiders, as a group, have a considerable shareholding. Given insiders own a significant chunk of shares, currently valued at US$59m, they have plenty of motivation to push the business to succeed. That's certainly enough to let shareholders know that management will be very focussed on long term growth.

Is ABB Worth Keeping An Eye On?

ABB's earnings per share growth have been climbing higher at an appreciable rate. What's more, insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe ABB deserves timely attention. We should say that we've discovered 2 warning signs for ABB that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of ABB, you'll probably love this free list of growing companies that insiders are 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.