If EPS Growth Is Important To You, AbbVie (NYSE:ABBV) Presents An Opportunity

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like AbbVie (NYSE:ABBV), which has not only revenues, but also profits. 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.

See our latest analysis for AbbVie

AbbVie's Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that AbbVie has grown EPS by 51% per year, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

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 AbbVie remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 4.8% to US$58b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for AbbVie?

Are AbbVie Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$285b company like AbbVie. But we are reassured by the fact they have invested in the company. Notably, they have an enviable stake in the company, worth US$171m. We note that this amounts to 0.06% of the company, which may be small owing to the sheer size of AbbVie but it's still worth mentioning. This still shows shareholders there is a degree of alignment between management and themselves.

Should You Add AbbVie To Your Watchlist?

AbbVie's earnings have taken off in quite an impressive fashion. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So based on this quick analysis, we do think it's worth considering AbbVie for a spot on your watchlist. Still, you should learn about the 2 warning signs we've spotted with AbbVie.

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.