Does Akzo Nobel (AMS:AKZA) Deserve A Spot On Your Watchlist?

By
Simply Wall St
Published
July 05, 2021
ENXTAM:AKZA
Source: Shutterstock

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In contrast to all that, I prefer to spend time on companies like Akzo Nobel (AMS:AKZA), which has not only revenues, but also profits. 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. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for Akzo Nobel

How Fast Is Akzo Nobel Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Akzo Nobel has grown EPS by 27% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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). Akzo Nobel's EBIT margins have actually improved by 2.3 percentage points in the last year, to reach 13%, but, on the flip side, revenue was down 4.5%. That falls short of ideal.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
ENXTAM:AKZA Earnings and Revenue History July 6th 2021

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Akzo Nobel.

Are Akzo Nobel Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Over the last 12 months Akzo Nobel insiders spent €100k more buying shares than they received from selling them. Although I don't particularly like to see selling, the fact that they put more capital in, than they extracted, is a positive in my mind. It is also worth noting that it was Chairman of the Board of Management & CEO Thierry F. Vanlancker who made the biggest single purchase, worth €294k, paying €84.02 per share.

Should You Add Akzo Nobel To Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Akzo Nobel's strong EPS growth. Not only is that growth rate rather juicy, but the insider buying makes my mouth water. So on this analysis I believe Akzo Nobel is probably worth spending some time on. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Akzo Nobel that you should be aware of.

The good news is that Akzo Nobel 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. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


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