If EPS Growth Is Important To You, American States Water (NYSE:AWR) Presents An Opportunity

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 American States Water (NYSE:AWR). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide American States Water with the means to add long-term value to shareholders.

View our latest analysis for American States Water

How Quickly Is American States Water Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, American States Water has grown EPS by 14% per year. 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. The music to the ears of American States Water shareholders is that EBIT margins have grown from 28% to 32% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

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

Fortunately, we've got access to analyst forecasts of American States Water's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are American States Water Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. 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.

While American States Water insiders did net US$89k selling stock over the last year, they invested US$421k, a much higher figure. You could argue that level of buying implies genuine confidence in the business. It is also worth noting that it was Independent Director Thomas Eichelberger who made the biggest single purchase, worth US$180k, paying US$89.99 per share.

The good news, alongside the insider buying, for American States Water bulls is that insiders (collectively) have a meaningful investment in the stock. As a matter of fact, their holding is valued at US$30m. This considerable investment should help drive long-term value in the business. Even though that's only about 1.0% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, Bob Sprowls is paid comparatively modestly to CEOs at similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like American States Water with market caps between US$2.0b and US$6.4b is about US$6.6m.

American States Water's CEO took home a total compensation package worth US$3.5m in the year leading up to December 2022. That is actually below the median for CEO's of similarly sized companies. 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 good governance, more generally.

Does American States Water Deserve A Spot On Your Watchlist?

As previously touched on, American States Water is a growing business, which is encouraging. On top of that, we've seen insiders buying shares even though they already own plenty. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. Still, you should learn about the 2 warning signs we've spotted with American States Water (including 1 which makes us a bit uncomfortable).

There are plenty of other companies that have insiders buying up shares. So if you like the sound of American States Water, 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.