Atlas Copco (STO:ATCO A) Ticks All The Boxes When It Comes To Earnings Growth

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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 Atlas Copco (STO:ATCO A), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for Atlas Copco

How Fast Is Atlas Copco 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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Atlas Copco has managed to grow EPS by 21% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. Atlas Copco maintained stable EBIT margins over the last year, all while growing revenue 9.8% to kr177b. 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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Atlas Copco's future EPS 100% free.

Are Atlas Copco 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Not only did Atlas Copco insiders refrain from selling stock during the year, but they also spent kr1.2m buying it. That's nice to see, because it suggests insiders are optimistic. It is also worth noting that it was President Vagner Rego who made the biggest single purchase, worth kr397k, paying kr172 per share.

On top of the insider buying, it's good to see that Atlas Copco insiders have a valuable investment in the business. Indeed, they hold kr235m worth of its stock. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 0.03%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Does Atlas Copco Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Atlas Copco's strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. These things considered, this is one stock worth watching. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Atlas Copco.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.