Here's Why We Think Akzo Nobel (AMS:AKZA) Is Well Worth Watching

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 Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Akzo Nobel (AMS:AKZA). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Akzo Nobel

How Fast Is Akzo Nobel 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, Akzo Nobel's EPS has grown 37% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. While we note Akzo Nobel's EBIT margins were flat over the last year, revenue grew by a solid 9.7% to €9.4b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Akzo Nobel EPS 100% free.

Are Akzo Nobel Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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. We also note that it was the Chairman of the Board of Management & CEO, Thierry F. Vanlancker, who made the biggest single acquisition, paying €294k for shares at about €84.02 each.

Is Akzo Nobel Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Akzo Nobel's strong EPS growth. The growth rate whets my appetite for research, and the insider buying only increases my interest in the stock. So on this analysis I believe Akzo Nobel is probably worth spending some time on. Before you take the next step you should know about the 1 warning sign for Akzo Nobel that we have uncovered.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Akzo Nobel, 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.