Is Now The Time To Put Wells Fargo (NYSE:WFC) On Your Watchlist?

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.

In contrast to all that, many investors prefer to focus on companies like Wells Fargo (NYSE:WFC), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Wells Fargo with the means to add long-term value to shareholders.

Check out our latest analysis for Wells Fargo

How Quickly Is Wells Fargo Increasing Earnings Per Share?

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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. To the delight of shareholders, Wells Fargo has achieved impressive annual EPS growth of 54%, compound, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

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 Wells Fargo's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Wells Fargo maintained stable EBIT margins over the last year, all while growing revenue 5.1% to US$78b. That's a real positive.

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

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Wells Fargo's future profits.

Are Wells Fargo 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Belief in the company remains high for insiders as there hasn't been a single share sold by the management or company board members. But the real excitement comes from the US$144k that company insider Richard Davis spent buying shares (at an average price of about US$41.22). Purchases like this clue us in to the to the faith management has in the business' future.

The good news, alongside the insider buying, for Wells Fargo bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enviable stake in the company, worth US$213m. This comes in at 0.1% of shares in the company, which is a fair amount of a business of this size. This should still be a great incentive for management to maximise shareholder value.

Should You Add Wells Fargo To Your Watchlist?

Wells Fargo's earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Wells Fargo deserves timely attention. Still, you should learn about the 1 warning sign we've spotted with Wells Fargo.

The good news is that Wells Fargo is not the only stock with insider buying. Here's a list of small cap, undervalued companies in the US with insider buying in the last three months!

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.