We Ran A Stock Scan For Earnings Growth And Autoliv (NYSE:ALV) Passed With Ease

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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Autoliv (NYSE:ALV). 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.

View our latest analysis for Autoliv

How Fast Is Autoliv Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Autoliv has grown EPS by 7.6% per year. While that sort of growth rate isn't anything to write home about, it does show the business is growing.

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. Autoliv maintained stable EBIT margins over the last year, all while growing revenue 8.2% to US$11b. That's encouraging news for the company!

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of Autoliv's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Autoliv Insiders Aligned With All Shareholders?

Since Autoliv has a market capitalisation of US$7.6b, we wouldn't expect insiders to hold a large percentage of shares. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Indeed, they hold US$22m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.3% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Autoliv, with market caps between US$4.0b and US$12b, is around US$8.2m.

The Autoliv CEO received total compensation of just US$4.0m in the year to December 2023. First impressions seem to indicate a compensation policy that is favourable to shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Autoliv Worth Keeping An Eye On?

One important encouraging feature of Autoliv is that it is growing profits. Earnings growth might be the main attraction for Autoliv, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. We don't want to rain on the parade too much, but we did also find 2 warning signs for Autoliv that you need to be mindful of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by significant insider holdings.

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.