Should You Be Adding Federal Agricultural Mortgage (NYSE:AGM) To Your Watchlist Today?

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Federal Agricultural Mortgage (NYSE:AGM). 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.

Check out our latest analysis for Federal Agricultural Mortgage

How Quickly Is Federal Agricultural Mortgage Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Shareholders will be happy to know that Federal Agricultural Mortgage's EPS has grown 17% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. It's noted that Federal Agricultural Mortgage's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Federal Agricultural Mortgage maintained stable EBIT margins over the last year, all while growing revenue 21% to US$288m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Federal Agricultural Mortgage 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Federal Agricultural Mortgage insiders both bought and sold shares over the last twelve months, but they did end up spending US$14k more on stock than they received from selling it. At face value we can consider this a fairly encouraging sign for the company. It is also worth noting that it was Independent Director Robert Sexton who made the biggest single purchase, worth US$233k, paying US$117 per share.

On top of the insider buying, it's good to see that Federal Agricultural Mortgage insiders have a valuable investment in the business. Indeed, they hold US$16m worth of its stock. This considerable investment should help drive long-term value in the business. Even though that's only about 1.3% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Brad Nordholm, is paid less than the median for similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Federal Agricultural Mortgage with market caps between US$1.0b and US$3.2b is about US$5.6m.

Federal Agricultural Mortgage's CEO took home a total compensation package worth US$3.2m in the year leading up to December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Federal Agricultural Mortgage To Your Watchlist?

For growth investors, Federal Agricultural Mortgage's raw rate of earnings growth is a beacon in the night. 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. You still need to take note of risks, for example - Federal Agricultural Mortgage has 2 warning signs (and 1 which is significant) we think you should know about.

Keen growth investors love to see insider buying. Thankfully, Federal Agricultural Mortgage isn't the only one. You can see a a free list of them here.

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.