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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. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
In contrast to all that, many investors prefer to focus on companies like Federal Agricultural Mortgage (NYSE:AGM), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for Federal Agricultural Mortgage
Federal Agricultural Mortgage'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. It certainly is nice to see that Federal Agricultural Mortgage has managed to grow EPS by 17% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Our analysis has highlighted that Federal Agricultural Mortgage's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. While we note Federal Agricultural Mortgage achieved similar EBIT margins to last year, revenue grew by a solid 4.9% to US$364m. 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.
Fortunately, we've got access to analyst forecasts of Federal Agricultural Mortgage's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Federal Agricultural Mortgage Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Federal Agricultural Mortgage followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Indeed, they hold US$29m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 1.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.