Do AAON's (NASDAQ:AAON) Earnings Warrant Your Attention?

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like AAON (NASDAQ:AAON). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for AAON

How Quickly Is AAON Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Impressively, AAON has grown EPS by 20% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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. AAON shareholders can take confidence from the fact that EBIT margins are up from 13% to 15%, 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.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for AAON.

Are AAON Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. 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.

In twelve months, insiders sold US$29k worth of AAON shares. But the silver lining to that cloud is that Stephen Wakefield, the VP of Engineering & COO, spent US$46k buying shares at an average price of US$89.30. And that's a reason to be optimistic.

On top of the insider buying, it's good to see that AAON insiders have a valuable investment in the business. Notably, they have an enviable stake in the company, worth US$996m. That equates to 18% of the company, making insiders powerful and aligned with other shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

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. The cherry on top is that the CEO, Gary Fields is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations between US$4.0b and US$12b, like AAON, the median CEO pay is around US$7.9m.

AAON's CEO took home a total compensation package of US$3.4m in the year prior to December 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. 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.

Does AAON Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into AAON's strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. These things considered, this is one stock worth watching. You should always think about risks though. Case in point, we've spotted 1 warning sign for AAON you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of AAON, 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.