If EPS Growth Is Important To You, Essity (STO:ESSITY B) Presents An Opportunity

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. 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Essity (STO:ESSITY B). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Essity with the means to add long-term value to shareholders.

Check out our latest analysis for Essity

Essity's Earnings Per Share Are Growing

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. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Essity grew its EPS by 4.4% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

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. Essity shareholders can take confidence from the fact that EBIT margins are up from 10% to 13%, and revenue is growing. Both of which are great metrics to check off for potential growth.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

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 Essity's future EPS 100% free.

Are Essity 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The kr898k worth of shares that insiders sold during the last 12 months pales in comparison to the kr14m they spent on acquiring shares in the company. This bodes well for Essity as it highlights the fact that those who are important to the company having a lot of faith in its future. We also note that it was the President of Professional Hygiene, Pablo Fuentes, who made the biggest single acquisition, paying kr2.2m for shares at about kr264 each.

Should You Add Essity To Your Watchlist?

One positive for Essity is that it is growing EPS. That's nice to see. Not every business can grow its EPS, but Essity certainly can. The cherry on top is the insider share purchases, which provide an extra impetus to keep and eye on this stock, at the very least. We don't want to rain on the parade too much, but we did also find 2 warning signs for Essity that you need to be mindful of.

Keen growth investors love to see insider activity. Thankfully, Essity 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.