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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Aflac (NYSE:AFL). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
How Quickly Is Aflac 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 makes EPS growth an attractive quality for any company. We can see that in the last three years Aflac grew its EPS by 17% per year. That growth rate is fairly good, assuming the company can keep it up.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Not all of Aflac's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. This approach makes Aflac look pretty good, on balance; although revenue is flattish, EBIT margins improved from 29% to 35% in the last year. Which is a great look for the company.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
See our latest analysis for Aflac
Fortunately, we've got access to analyst forecasts of Aflac's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Aflac Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$60b company like Aflac. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. We note that their impressive stake in the company is worth US$479m. We note that this amounts to 0.8% of the company, which may be small owing to the sheer size of Aflac but it's still worth mentioning. This should still be a great incentive for management to maximise shareholder value.