With EPS Growth And More, Alfa Laval (STO:ALFA) Makes An Interesting Case

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

View our latest analysis for Alfa Laval

How Quickly Is Alfa Laval Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Alfa Laval has grown EPS by 22% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Alfa Laval achieved similar EBIT margins to last year, revenue grew by a solid 6.8% 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. To see the actual numbers, click on the chart.

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 Alfa Laval.

Are Alfa Laval Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Not only did Alfa Laval insiders refrain from selling stock during the year, but they also spent kr1.4m buying it. That's nice to see, because it suggests insiders are optimistic. We also note that it was the Independent Director, Anna Muller, who made the biggest single acquisition, paying kr500k for shares at about kr476 each.

Along with the insider buying, another encouraging sign for Alfa Laval is that insiders, as a group, have a considerable shareholding. To be specific, they have kr226m worth of shares. 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?

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. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Alfa Laval. You might benefit from giving it a glance today.

Keen growth investors love to see insider activity. 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 high insider ownership.

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.