With EPS Growth And More, York Water (NASDAQ:YORW) Is Interesting

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. 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.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like York Water (NASDAQ:YORW). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for York Water

How Fast Is York Water Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, York Water has grown EPS by 9.0% per year. That's a pretty good rate, if the company can sustain it.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note York Water's EBIT margins were flat over the last year, revenue grew by a solid 5.6% to US$53m. That's a real positive.

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

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

Are York Water Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

While York Water insiders did net -US$9.6k selling stock over the last year, they invested US$230k, a much higher figure. On balance, to me, this signals their optimism. It is also worth noting that it was Independent Director Jody Keller who made the biggest single purchase, worth US$25k, paying US$46.53 per share.

I do like that insiders have been buying shares in York Water, but there is more evidence of shareholder friendly management. I refer to the very reasonable level of CEO pay. I discovered that the median total compensation for the CEOs of companies like York Water with market caps between US$400m and US$1.6b is about US$2.6m.

The CEO of York Water only received US$341k in total compensation for the year ending . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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.

Is York Water Worth Keeping An Eye On?

One important encouraging feature of York Water is that it is growing profits. And that's not all, folks. We've also seen insiders buying stock, and noted modest executive pay. If that doesn't automatically earn it a spot on your watchlist then I'd posit it warrants a closer look at the very least. It is worth noting though that we have found 1 warning sign for York Water that you need to take into consideration.

As a growth investor I do like to see insider buying. But York Water isn't the only one. You can see a 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. 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.
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