Stock Analysis

Does Allegion (NYSE:ALLE) Deserve A Spot On Your Watchlist?

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NYSE:ALLE
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In contrast to all that, I prefer to spend time on companies like Allegion (NYSE:ALLE), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for Allegion

How Fast Is Allegion Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Allegion has grown EPS by 19% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Allegion maintained stable EBIT margins over the last year, all while growing revenue 6.0% to US$2.9b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NYSE:ALLE Earnings and Revenue History August 2nd 2021

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Allegion EPS 100% free.

Are Allegion Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$12b company like Allegion. But we are reassured by the fact they have invested in the company. With a whopping US$57m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like Allegion, with market caps over US$8.0b, is about US$11m.

Allegion offered total compensation worth US$8.8m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Is Allegion Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Allegion's strong EPS growth. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. This may only be a fast rundown, but the takeaway for me is that Allegion is worth keeping an eye on. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Allegion that you should be aware of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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What are the risks and opportunities for Allegion?

Allegion plc manufactures and sells mechanical and electronic security products and solutions worldwide.

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Rewards

  • Earnings are forecast to grow 10.73% per year

Risks

  • Debt is not well covered by operating cash flow

  • Significant insider selling over the past 3 months

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