Here's Why Mercury General (NYSE:MCY) Has Caught The Eye Of Investors

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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Mercury General (NYSE:MCY). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Mercury General with the means to add long-term value to shareholders.

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Mercury General's Improving Profits

Mercury General has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. To the delight of shareholders, Mercury General's EPS soared from US$3.88 to US$5.17, over the last year. That's a commendable gain of 33%.

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. While we note Mercury General achieved similar EBIT margins to last year, revenue grew by a solid 17% to US$5.6b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

Check out our latest analysis for Mercury General

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Mercury General Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The US$83k worth of shares that insiders sold during the last 12 months pales in comparison to the US$992k they spent on acquiring shares in the company. This bodes well for Mercury General as it highlights the fact that those who are important to the company having a lot of faith in its future. We also note that it was the President, Victor Joseph, who made the biggest single acquisition, paying US$899k for shares at about US$59.95 each.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Mercury General insiders own more than a third of the company. In fact, they own 52% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. At the current share price, that insider holding is worth a staggering US$2.0b. 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 on our analysis the CEO, Gabe Tirador, is paid less than the median for similar sized companies. For companies with market capitalisations between US$2.0b and US$6.4b, like Mercury General, the median CEO pay is around US$7.5m.

Mercury General's CEO took home a total compensation package of US$3.7m in the year prior to December 2024. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Should You Add Mercury General To Your Watchlist?

You can't deny that Mercury General has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. Astute investors will want to keep this stock on watch. However, before you get too excited we've discovered 1 warning sign for Mercury General that you should be aware of.

Keen growth investors love to see insider activity. Thankfully, Mercury General isn't the only one. You can see a a curated list of companies which have exhibited consistent growth accompanied by high insider ownership.

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.