If EPS Growth Is Important To You, Alamo Group (NYSE:ALG) Presents An Opportunity

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like Alamo Group (NYSE:ALG), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for Alamo Group

How Fast Is Alamo Group Growing?

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. We can see that in the last three years Alamo Group grew its EPS by 8.8% per year. That growth rate is fairly good, assuming the company can keep it up.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Alamo Group maintained stable EBIT margins over the last year, all while growing revenue 14% to US$1.5b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

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

Are Alamo Group Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Alamo Group insiders have a significant amount of capital invested in the stock. To be specific, they have US$39m worth of shares. This considerable investment should help drive long-term value in the business. Even though that's only about 2.3% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Alamo Group, with market caps between US$1.0b and US$3.2b, is around US$5.6m.

The Alamo Group CEO received US$2.8m in compensation for the year ending December 2021. That comes in below the average for similar sized companies and seems pretty reasonable. 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. It can also be a sign of good governance, more generally.

Is Alamo Group Worth Keeping An Eye On?

One important encouraging feature of Alamo Group is that it is growing profits. 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. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Alamo Group. You might benefit from giving it a glance today.

Although Alamo Group certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.