If EPS Growth Is Important To You, Severn Trent (LON:SVT) Presents An Opportunity

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Severn Trent (LON:SVT). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

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How Quickly Is Severn Trent Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that Severn Trent has grown EPS by 40% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

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. Severn Trent shareholders can take confidence from the fact that EBIT margins are up from 21% to 24%, and revenue is growing. Both of which are great metrics to check off for potential growth.

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.

See our latest analysis for Severn Trent

Fortunately, we've got access to analyst forecasts of Severn Trent's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Severn Trent Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Not only did Severn Trent insiders refrain from selling stock during the year, but they also spent UK£95k buying it. That paints the company in a nice light, as it signals that its leaders are feeling confident in where the company is heading. We also note that it was the Independent Non-Executive Director, Richard Taylor, who made the biggest single acquisition, paying UK£47k for shares at about UK£26.36 each.

Along with the insider buying, another encouraging sign for Severn Trent is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at UK£17m. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 0.2%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Liv Garfield, is paid less than the median for similar sized companies. For companies with market capitalisations over UK£6.0b, like Severn Trent, the median CEO pay is around UK£5.0m.

Severn Trent offered total compensation worth UK£3.3m to its CEO in the year to March 2025. That comes in below the average for similar sized companies and seems pretty reasonable. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Severn Trent To Your Watchlist?

Severn Trent's earnings per share have been soaring, with growth rates sky high. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Severn Trent belongs near the top of your watchlist. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Severn Trent that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Severn Trent, you'll probably love this curated collection of companies in GB that have an attractive valuation alongside 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.