The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Insurance Australia Group (ASX:IAG). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Insurance Australia Group with the means to add long-term value to shareholders.
How Fast Is Insurance Australia Group Growing Its Earnings Per Share?
Over the last three years, Insurance Australia Group has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. As a result, we'll zoom in on growth over the last year, instead. Insurance Australia Group boosted its trailing twelve month EPS from AU$0.34 to AU$0.38, in the last year. There's little doubt shareholders would be happy with that 13% gain.
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. While we note Insurance Australia Group achieved similar EBIT margins to last year, revenue grew by a solid 12% to AU$16b. That's encouraging news for the company!
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
ASX:IAG Earnings and Revenue History December 18th 2024
Fortunately, we've got access to analyst forecasts of Insurance Australia 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 Insurance Australia Group Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
The good news for Insurance Australia Group shareholders is that no insiders reported selling shares in the last year. With that in mind, it's heartening that George Sartorel, the Independent Non-Executive Director of the company, paid AU$38k for shares at around AU$7.69 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.
It's commendable to see that insiders have been buying shares in Insurance Australia Group, but there is more evidence of shareholder friendly management. Namely, Insurance Australia Group has a very reasonable level of CEO pay. For companies with market capitalisations over AU$13b, like Insurance Australia Group, the median CEO pay is around AU$6.8m.
Insurance Australia Group's CEO took home a total compensation package worth AU$5.2m in the year leading up to June 2024. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does Insurance Australia Group Deserve A Spot On Your Watchlist?
One important encouraging feature of Insurance Australia Group is that it is growing profits. And that's not all. We've also seen insiders buying stock, and noted modest executive pay. If these factors aren't enough to secure Insurance Australia Group a spot on the watchlist, then it certainly warrants a closer look at the very least. What about risks? Every company has them, and we've spotted 1 warning sign for Insurance Australia Group you should know about.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
