With EPS Growth And More, Essential Utilities (NYSE:WTRG) Makes An Interesting Case

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.

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

Check out our latest analysis for Essential Utilities

Essential Utilities' Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. Essential Utilities managed to grow EPS by 7.0% per year, over three years. While that sort of growth rate isn't anything to write home about, it does show the business is growing.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Unfortunately, Essential Utilities' revenue dropped 16% last year, but the silver lining is that EBIT margins improved from 30% to 36%. That falls short of ideal.

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.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Essential Utilities' future profits.

Are Essential Utilities Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$11b company like Essential Utilities. But we are reassured by the fact they have invested in the company. As a matter of fact, their holding is valued at US$23m. That's a lot of money, and no small incentive to work hard. Even though that's only about 0.2% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Essential Utilities, with market caps over US$8.0b, is around US$13m.

The Essential Utilities CEO received total compensation of just US$5.2m in the year to December 2023. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Essential Utilities Deserve A Spot On Your Watchlist?

As previously touched on, Essential Utilities is a growing business, which is encouraging. The growth of EPS may be the eye-catching headline for Essential Utilities, but there's more to bring joy for shareholders. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. Before you take the next step you should know about the 4 warning signs for Essential Utilities (1 doesn't sit too well with us!) that we have uncovered.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.

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.