Should You Be Adding a2 Milk (NZSE:ATM) To Your Watchlist Today?

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 currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in a2 Milk (NZSE:ATM). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide a2 Milk with the means to add long-term value to shareholders.

Check out our latest analysis for a2 Milk

a2 Milk's Improving Profits

Over the last three years, a2 Milk has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. In previous twelve months, a2 Milk's EPS has risen from NZ$0.23 to NZ$0.24. That's a fair increase of 4.1%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note a2 Milk achieved similar EBIT margins to last year, revenue grew by a solid 8.3% to NZ$1.8b. That's encouraging news for the company!

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

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 a2 Milk's future profits.

Are a2 Milk Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that a2 Milk insiders have a significant amount of capital invested in the stock. To be specific, they have NZ$24m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.4% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is a2 Milk Worth Keeping An Eye On?

One important encouraging feature of a2 Milk is that it is growing profits. To add an extra spark to the fire, significant insider ownership in the company is another highlight. The combination definitely favoured by investors so consider keeping the company on a watchlist. Still, you should learn about the 1 warning sign we've spotted with a2 Milk.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in NZ with promising growth potential and insider confidence.

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.