Do Algonquin Power & Utilities's (TSE:AQN) Earnings Warrant Your Attention?
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Algonquin Power & Utilities (TSE:AQN). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
View our latest analysis for Algonquin Power & Utilities
Algonquin Power & Utilities's Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Algonquin Power & Utilities has grown EPS by 27% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.
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 Algonquin Power & Utilities's EBIT margins were flat over the last year, revenue grew by a solid 2.2% to US$1.6b. That's progress.
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.
Fortunately, we've got access to analyst forecasts of Algonquin Power & Utilities's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Algonquin Power & Utilities Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$8.0b company like Algonquin Power & Utilities. But we are reassured by the fact they have invested in the company. Given insiders own a small fortune of shares, currently valued at US$66m, they have plenty of motivation to push the business to succeed. That's certainly enough to make me think that management will be very focussed on long term growth.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like Algonquin Power & Utilities with market caps between CA$5.2b and CA$16b is about CA$5.9m.
Algonquin Power & Utilities offered total compensation worth US$4.4m to its CEO in the year to December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.
Is Algonquin Power & Utilities Worth Keeping An Eye On?
For growth investors like me, Algonquin Power & Utilities's raw rate of earnings growth is a beacon in the night. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. Each to their own, but I think all this makes Algonquin Power & Utilities look rather interesting indeed. Now, you could try to make up your mind on Algonquin Power & Utilities by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
Although Algonquin Power & Utilities certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
