It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
So if you're like me, you might be more interested in profitable, growing companies, like American Electric Power Company (NASDAQ:AEP). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
American Electric Power Company's Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. American Electric Power Company managed to grow EPS by 5.9% per year, over three years. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
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 Electric Power Company's EBIT margins were flat over the last year, revenue grew by a solid 9.5% to US$16b. That's progress.
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.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for American Electric Power Company.
Are American Electric Power Company Insiders Aligned With All Shareholders?
Since American Electric Power Company has a market capitalization of US$45b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Indeed, they hold US$26m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.06% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
Does American Electric Power Company Deserve A Spot On Your Watchlist?
One positive for American Electric Power Company is that it is growing EPS. That's nice to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. What about risks? Every company has them, and we've spotted 1 warning sign for American Electric Power Company you should know about.
You can invest in 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
