Should You Be Adding Energy Services of America (NASDAQ:ESOA) To Your Watchlist Today?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Energy Services of America (NASDAQ:ESOA). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

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Energy Services of America's Improving Profits

In the last three years Energy Services of America's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, Energy Services of America's EPS grew from US$0.61 to US$1.09, over the previous 12 months. Year on year growth of 80% is certainly a sight to behold.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Energy Services of America maintained stable EBIT margins over the last year, all while growing revenue 4.6% to US$368m. That's progress.

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.

See our latest analysis for Energy Services of America

Energy Services of America isn't a huge company, given its market capitalisation of US$184m. That makes it extra important to check on its balance sheet strength.

Are Energy Services of America Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Energy Services of America insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at US$48m. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 26% of the company, demonstrating a degree of high-level alignment with shareholders.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. For companies with market capitalisations between US$100m and US$400m, like Energy Services of America, the median CEO pay is around US$1.6m.

The Energy Services of America CEO received total compensation of just US$269k in the year to September 2024. 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.

Is Energy Services of America Worth Keeping An Eye On?

Energy Services of America's earnings have taken off in quite an impressive fashion. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Big growth can make big winners, so the writing on the wall tells us that Energy Services of America is worth considering carefully. We don't want to rain on the parade too much, but we did also find 3 warning signs for Energy Services of America that you need to be mindful of.

Although Energy Services of America certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of companies that not only boast of strong growth but have strong insider backing.

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.