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. 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. 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 Alamo Group (NYSE:ALG). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Alamo Group with the means to add long-term value to shareholders.
How Fast Is Alamo Group Growing Its Earnings Per Share?
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Alamo Group's EPS has risen over the last 12 months, growing from US$6.16 to US$6.99. That's a 14% gain; respectable growth in the broader scheme of things.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. EBIT margins for Alamo Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 16% to US$1.4b. That's encouraging news for the company!
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Alamo Group?
Are Alamo Group Insiders Aligned With All Shareholders?
It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. So it is good to see that Alamo Group insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at US$37m. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 2.3%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Alamo Group with market caps between US$1.0b and US$3.2b is about US$5.5m.
Alamo Group's CEO took home a total compensation package worth US$2.8m in the year leading up to December 2021. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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.
Does Alamo Group Deserve A Spot On Your Watchlist?
One positive for Alamo Group is that it is growing EPS. That's nice to see. The growth of EPS may be the eye-catching headline for Alamo Group, but there's more to bring joy for shareholders. Boasting both modest CEO pay and considerable insider ownership, you'd argue this one is worthy of the watchlist, at least. What about risks? Every company has them, and we've spotted 2 warning signs for Alamo Group (of which 1 is potentially serious!) you should know about.
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 free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
What are the risks and opportunities for Alamo Group?
Trading at 7.3% below our estimate of its fair value
Earnings are forecast to grow 13.41% per year
Earnings grew by 30.9% over the past year
No risks detected for ALG from our risks checks.
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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.
Alamo Group Inc. designs, manufactures, distributes, and services vegetation management and infrastructure maintenance equipment for governmental, industrial, and agricultural uses worldwide.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
|Analysis Area||Score (0-6)|
Read more about these checks in the individual report sections or in our analysis model.
Solid track record with adequate balance sheet.