Here's Why We Think American Coastal Insurance (NASDAQ:ACIC) Might Deserve Your Attention Today

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like American Coastal Insurance (NASDAQ:ACIC). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

View our latest analysis for American Coastal Insurance

How Fast Is American Coastal Insurance Growing Its Earnings Per Share?

Over the last three years, American Coastal Insurance has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. American Coastal Insurance boosted its trailing twelve month EPS from US$1.59 to US$1.76, in the last year. That's a 10% gain; respectable growth in the broader scheme of things.

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. Despite the relatively flat revenue figures, shareholders will be pleased to see EBIT margins have grown from 27% to 40% in the last 12 months. That's something to smile about.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check American Coastal Insurance's balance sheet strength, before getting too excited.

Are American Coastal Insurance Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Over the last 12 months American Coastal Insurance insiders spent US$97k more buying shares than they received from selling them. Shareholders who may have questioned insiders selling will find some reassurance in this fact. Zooming in, we can see that the biggest insider purchase was by Independent Director Michael Hogan for US$91k worth of shares, at about US$11.37 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since American Coastal Insurance insiders own more than a third of the company. Actually, with 49% of the company to their names, insiders are profoundly invested in the business. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. at the current share price. This is an incredible endorsement from them.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because American Coastal Insurance's CEO, Brad Martz, is paid at a relatively modest level when compared to other CEOs for companies of this size. The median total compensation for CEOs of companies similar in size to American Coastal Insurance, with market caps between US$400m and US$1.6b, is around US$3.3m.

American Coastal Insurance's CEO took home a total compensation package of US$1.6m in the year prior to December 2023. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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 American Coastal Insurance Worth Keeping An Eye On?

One positive for American Coastal Insurance is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for your watchlist - and arguably a research priority. It is worth noting though that we have found 1 warning sign for American Coastal Insurance that you need to take into consideration.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of American Coastal Insurance, you'll probably love this curated collection of companies in the US that have an attractive valuation alongside 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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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.