AB Volvo (STO:VOLV B) Ticks All The Boxes When It Comes To Earnings Growth

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 AB Volvo (STO:VOLV B), which has not only revenues, but also profits. 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 AB Volvo

How Quickly Is AB Volvo Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Shareholders will be happy to know that AB Volvo's EPS has grown 28% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Our analysis has highlighted that AB Volvo's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. While we note AB Volvo achieved similar EBIT margins to last year, revenue grew by a solid 27% to kr521b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of AB Volvo's forecast profits?

Are AB Volvo 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The kr3.4m worth of shares that insiders sold during the last 12 months pales in comparison to the kr250m they spent on acquiring shares in the company. We find this encouraging because it suggests they are optimistic about AB Volvo'sfuture. Zooming in, we can see that the biggest insider purchase was by Director Helena Stjernholm for kr203m worth of shares, at about kr204 per share.

The good news, alongside the insider buying, for AB Volvo bulls is that insiders (collectively) have a meaningful investment in the stock. Given insiders own a significant chunk of shares, currently valued at kr1.1b, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

Should You Add AB Volvo To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into AB Volvo's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. Astute investors will want to keep this stock on watch. We should say that we've discovered 2 warning signs for AB Volvo (1 is significant!) that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of AB Volvo, you'll probably love this free list of growing companies that insiders are 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.