Here's Why I Think American Equity Investment Life Holding (NYSE:AEL) Might Deserve Your Attention Today

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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like American Equity Investment Life Holding (NYSE:AEL). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 American Equity Investment Life Holding

How Fast Is American Equity Investment Life Holding Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. American Equity Investment Life Holding managed to grow EPS by 15% per year, over three years. That's a good rate of growth, if it can be sustained.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. I note that, last year, American Equity Investment Life Holding's revenue from operations was lower than its revenue, so that could distort my analysis of its margins. American Equity Investment Life Holding's EBIT margins are flat but, of some concern, its revenue is actually down. And that does make me a little more cautious of the stock.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

In investing, as in life, the future matters more than the past. So why not check out this freeinteractive visualization of American Equity Investment Life Holding's forecast profits?.

Are American Equity Investment Life Holding Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, 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 American Equity Investment Life Holding insiders have a significant amount of capital invested in the stock. Indeed, they hold US$47m worth of its stock. That's a lot of money, and no small incentive to work hard. Even though that's only about 1.7% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary 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 American Equity Investment Life Holding with market caps between US$2.0b and US$6.4b is about US$5.1m.

The American Equity Investment Life Holding CEO received US$3.6m in compensation for the year ending December 2018. 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. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add American Equity Investment Life Holding To Your Watchlist?

As I already mentioned, American Equity Investment Life Holding is a growing business, which is what I like to see. The fact that EPS is growing is a genuine positive for American Equity Investment Life Holding, but the pretty picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Now, you could try to make up your mind on American Equity Investment Life Holding by focusing on just these factors, oryou could also consider how its price-to-earnings ratio compares to other companies in its industry.

Although American Equity Investment Life Holding certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this freelist of growing companies that insiders are buying, could be exactly what you're looking for.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.