Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Alfa Laval (STO:ALFA). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
How Fast Is Alfa Laval Growing?
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). That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Alfa Laval has grown EPS by 34% per year, compound, in the last three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Alfa Laval maintained stable EBIT margins over the last year, all while growing revenue 14% to kr47b. That’s progress.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
Fortunately, we’ve got access to analyst forecasts of Alfa Laval’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Alfa Laval Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
The first bit of good news is that no Alfa Laval insiders reported share sales in the last twelve months. But the really good news is that President & CEO Tom Erixon spent kr2.3m buying stock stock, at an average price of around kr231. Big buys like that give me a sense of opportunity; actions speak louder than words.
On top of the insider buying, it’s good to see that Alfa Laval insiders have a valuable investment in the business. To be specific, they have kr160m worth of shares. 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.
Should You Add Alfa Laval To Your Watchlist?
For growth investors like me, Alfa Laval’s raw rate of earnings growth is a beacon in the night. Better still, insiders own a large chunk of the company and one has even been buying more shares. So I do think this is one stock worth watching. If you think Alfa Laval might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
The good news is that Alfa Laval is not the only growth stock with insider buying. Here’s a list of them… 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
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
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