Stock Analysis

I Built A List Of Growing Companies And American Water Works Company (NYSE:AWK) Made The Cut

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NYSE:AWK
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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like American Water Works Company (NYSE:AWK). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for American Water Works Company

How Quickly Is American Water Works Company Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. American Water Works Company managed to grow EPS by 9.1% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.

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. While we note American Water Works Company's EBIT margins were flat over the last year, revenue grew by a solid 4.3% to US$3.6b. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

NYSE:AWK Earnings and Revenue History June 26th 2020
NYSE:AWK Earnings and Revenue History June 26th 2020

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

Are American Water Works Company Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$22b company like American Water Works Company. But we are reassured by the fact they have invested in the company. With a whopping US$50m worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to make me think that management will be very focussed on long term growth.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like American Water Works Company, with market caps over US$8.0b, is about US$12m.

The CEO of American Water Works Company only received US$3.0m 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 American Water Works Company Worth Keeping An Eye On?

One positive for American Water Works Company is that it is growing EPS. That's nice to see. The fact that EPS is growing is a genuine positive for American Water Works Company, but the pretty picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. What about risks? Every company has them, and we've spotted 1 warning sign for American Water Works Company you should know about.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like 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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