Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Allegion (NYSE:ALLE). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
How Fast Is Allegion Growing?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. We can see that in the last three years Allegion grew its EPS by 8.8% 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. Allegion maintained stable EBIT margins over the last year, all while growing revenue 3.3% to US$3.8b. That's encouraging news for the company!
In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.
NYSE:ALLE Earnings and Revenue History March 23rd 2025
Are Allegion 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Although we did see some insider selling (worth US$981k) this was overshadowed by a mountain of buying, totalling US$2.9m in just one year. We find this encouraging because it suggests they are optimistic about Allegion'sfuture. We also note that it was the President, John Stone, who made the biggest single acquisition, paying US$1.1m for shares at about US$141 each.
The good news, alongside the insider buying, for Allegion bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$28m worth of its stock. This considerable investment should help drive long-term value in the business. While their ownership only accounts for 0.3%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. The cherry on top is that the CEO, John Stone is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalisations over US$8.0b, like Allegion, the median CEO pay is around US$13m.
Allegion offered total compensation worth US$9.0m to its CEO in the year to December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. 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 Allegion Deserve A Spot On Your Watchlist?
One important encouraging feature of Allegion is that it is growing profits. 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. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Allegion , and understanding this should be part of your investment process.
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.
