Here's Why Alfa Laval (STO:ALFA) Has Caught The Eye Of Investors

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. 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Alfa Laval (STO:ALFA). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Alfa Laval with the means to add long-term value to shareholders.

Check out our latest analysis for Alfa Laval

Alfa Laval's Earnings Per Share Are 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) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Alfa Laval has managed to grow EPS by 23% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Alfa Laval maintained stable EBIT margins over the last year, all while growing revenue 11% to kr66b. That's a real positive.

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.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Alfa Laval?

Are Alfa Laval Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We note that Alfa Laval insiders spent kr1.9m on stock, over the last year; in contrast, we didn't see any selling. That paints the company in a nice light, as it signals that its leaders are feeling confident in where the company is heading. Zooming in, we can see that the biggest insider purchase was by President of Energy Division Thomas Moller for kr742k worth of shares, at about kr371 per share.

The good news, alongside the insider buying, for Alfa Laval bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold kr207m worth of its stock. This considerable investment should help drive long-term value in the business. Even though that's only about 0.1% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is Alfa Laval Worth Keeping An Eye On?

You can't deny that Alfa Laval has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. These things considered, this is one stock worth watching. However, before you get too excited we've discovered 1 warning sign for Alfa Laval 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 Alfa Laval, you'll probably love this curated collection of companies in SE 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.