If You Like EPS Growth Then Check Out AIA Group (HKG:1299) Before It's Too Late

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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in AIA Group (HKG:1299). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

See our latest analysis for AIA Group

AIA Group'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 share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years AIA Group grew its EPS by 8.3% per year. That growth rate is fairly good, assuming the company can keep it up.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that AIA Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. AIA Group maintained stable EBIT margins over the last year, all while growing revenue 28% to US$55b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

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 AIA Group's future profits.

Are AIA Group Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's a pleasure to note that insiders spent US$8.4m buying AIA Group shares, over the last year, without reporting any share sales whatsoever. And so I find myself almost expectant, and certainly hopeful, that this large outlay signals prescient optimism for the business. Zooming in, we can see that the biggest insider purchase was by Independent Non-Executive Director Juen-Yee Lau for HK$6.3m worth of shares, at about HK$90.12 per share.

Along with the insider buying, another encouraging sign for AIA Group is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$360m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 0.04% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Should You Add AIA Group To Your Watchlist?

One positive for AIA Group is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. If you think AIA Group might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.

The good news is that AIA Group is not the only growth stock with insider buying. Here's a list of them... 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.