In This Article:
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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like Arch Capital Group (NASDAQ:ACGL), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
Check out our latest analysis for Arch Capital Group
Arch Capital Group's Earnings Per Share Are Growing
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Recognition must be given to the that Arch Capital Group has grown EPS by 44% per year, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
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. It's noted that Arch Capital Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. The good news is that Arch Capital Group is growing revenues, and EBIT margins improved by 3.8 percentage points to 30%, over the last year. Ticking those two boxes is a good sign of growth, in our book.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Fortunately, we've got access to analyst forecasts of Arch Capital Group's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Arch Capital Group Insiders Aligned With All Shareholders?
Since Arch Capital Group has a market capitalisation of US$37b, 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. Notably, they have an enviable stake in the company, worth US$1.0b. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.