Here's Why We Think Avangrid (NYSE:AGR) Is Well Worth Watching

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 currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 Avangrid (NYSE:AGR). 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 Avangrid

How Fast Is Avangrid Growing Its Earnings Per Share?

Even when EPS earnings per share (EPS) growth is unexceptional, company value can be created if this rate is sustained each year. So it's easy to see why many investors focus in on EPS growth. Avangrid's EPS has risen over the last 12 months, growing from US$1.97 to US$2.28. This amounts to a 15% gain; a figure that shareholders will be pleased to see.

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. On the one hand, Avangrid's EBIT margins fell over the last year, but on the other hand, revenue grew. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.

The chart below shows how the company's bottom and top lines have progressed over time. 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 Avangrid?

Are Avangrid 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news for Avangrid shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that Alan Solomont, the Independent Non-Executive Director of the company, paid US$10k for shares at around US$42.23 each. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Avangrid.

It's reassuring that Avangrid insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. Specifically, the CEO is paid quite reasonably for a company of this size. For companies with market capitalisations over US$8.0b, like Avangrid, the median CEO pay is around US$13m.

Avangrid's CEO took home a total compensation package of US$140k in the year prior to December 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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. It can also be a sign of a culture of integrity, in a broader sense.

Does Avangrid Deserve A Spot On Your Watchlist?

As previously touched on, Avangrid is a growing business, which is encouraging. And that's not all. We've also seen insiders buying stock, and noted modest executive pay. If these factors aren't enough to secure Avangrid a spot on the watchlist, then it certainly warrants a closer look at the very least. We should say that we've discovered 2 warning signs for Avangrid (1 is a bit concerning!) that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Avangrid, you'll probably love this free list of growing companies that insiders are buying.

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.