Should You Be Adding Eagle Materials (NYSE:EXP) To Your Watchlist Today?

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. 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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Eagle Materials (NYSE:EXP). 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.

Check out our latest analysis for Eagle Materials

Eagle Materials' Improving Profits

Over the last three years, Eagle Materials 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. As a result, we'll zoom in on growth over the last year, instead. To the delight of shareholders, Eagle Materials' EPS soared from US$8.87 to US$12.08, over the last year. That's a fantastic gain of 36%.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. EBIT margins for Eagle Materials remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 17% to US$2.1b. That's encouraging news for the company!

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Eagle Materials.

Are Eagle Materials Insiders Aligned With All Shareholders?

Owing to the size of Eagle Materials, we wouldn't expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. Given insiders own a significant chunk of shares, currently valued at US$65m, they have plenty of motivation to push the business to succeed. This would indicate that the goals of shareholders and management are one and the same.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Eagle Materials, with market caps between US$4.0b and US$12b, is around US$8.1m.

Eagle Materials offered total compensation worth US$6.6m to its CEO in the year to March 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Eagle Materials Deserve A Spot On Your Watchlist?

You can't deny that Eagle Materials has grown its earnings per share at a very impressive rate. That's attractive. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. The overarching message here is that Eagle Materials has underlying strengths that make it worth a look at. What about risks? Every company has them, and we've spotted 2 warning signs for Eagle Materials you should know about.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

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.