Should You Be Adding Alfa Laval (STO:ALFA) 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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Alfa Laval (STO:ALFA), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Alfa Laval

How Quickly Is Alfa Laval Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. We can see that in the last three years Alfa Laval grew its EPS by 11% per year. That's a good rate of growth, if it can be sustained.

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. While we note Alfa Laval achieved similar EBIT margins to last year, revenue grew by a solid 31% to kr62b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

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?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Not only did Alfa Laval insiders refrain from selling stock during the year, but they also spent kr1.5m buying it. That's nice to see, because it suggests insiders are optimistic. We also note that it was the President of Energy Division, Thomas Moller, who made the biggest single acquisition, paying kr742k for shares at about kr371 each.

Along with the insider buying, another encouraging sign for Alfa Laval is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at kr182m. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.1% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Should You Add Alfa Laval To Your Watchlist?

One positive for Alfa Laval is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Alfa Laval is trading on a high P/E or a low P/E, relative to its industry.

Keen growth investors love to see insider buying. Thankfully, Alfa Laval isn't the only one. You can see a a curated list of Swedish companies which have exhibited consistent growth accompanied by recent insider 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.