With EPS Growth And More, Atmos Energy (NYSE:ATO) Makes An Interesting Case

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Atmos Energy (NYSE:ATO). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

View our latest analysis for Atmos Energy

Atmos Energy's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Atmos Energy managed to grow EPS by 8.0% per year, over three years. That's a good rate of growth, if it can be sustained.

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 Atmos Energy did well to grow revenue over the last year, EBIT margins were dampened at the same time. So it seems the future may hold further growth, especially if EBIT margins can remain steady.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Atmos Energy's forecast profits?

Are Atmos Energy Insiders Aligned With All Shareholders?

Owing to the size of Atmos Energy, 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. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$126m. We note that this amounts to 0.7% of the company, which may be small owing to the sheer size of Atmos Energy but it's still worth mentioning. So despite their percentage holding being low, company management still have plenty of reasons to deliver the best outcomes for investors.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations over US$8.0b, like Atmos Energy, the median CEO pay is around US$13m.

Atmos Energy's CEO took home a total compensation package worth US$6.5m in the year leading up to September 2021. That comes in below the average for similar sized companies and seems pretty reasonable. 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 Atmos Energy Deserve A Spot On Your Watchlist?

One important encouraging feature of Atmos Energy is that it is growing profits. The growth of EPS may be the eye-catching headline for Atmos Energy, but there's more to bring joy for shareholders. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Even so, be aware that Atmos Energy is showing 4 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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.