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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
So if you're like me, you might be more interested in profitable, growing companies, like Anglo American (LON:AAL). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Fast Is Anglo American Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, Anglo American's EPS has grown 32% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Anglo American shareholders can take confidence from the fact that EBIT margins are up from 18% to 36%, and revenue is growing. That's great to see, on both counts.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Anglo American's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Anglo American Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, 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.
Anglo American top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the , James Rutherford, paid US$144k to buy shares at an average price of US$24.30.
On top of the insider buying, it's good to see that Anglo American insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$97m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
Should You Add Anglo American To Your Watchlist?
For growth investors like me, Anglo American's raw rate of earnings growth is a beacon in the night. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So it's fair to say I think this stock may well deserve a spot on your watchlist. We don't want to rain on the parade too much, but we did also find 2 warning signs for Anglo American (1 shouldn't be ignored!) that you need to be mindful of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Anglo American, 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.
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.
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