Yahoo Finance Here's Why We Think A. O. Smith (NYSE:AOS) Might Deserve Your Attention Today
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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
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 A. O. Smith (NYSE:AOS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide A. O. Smith with the means to add long-term value to shareholders.
View our latest analysis for A. O. Smith
A. O. Smith's Earnings Per Share Are 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. A. O. Smith managed to grow EPS by 10% per year, over three years. That's a good rate of growth, if it can be sustained.
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. While we note A. O. Smith achieved similar EBIT margins to last year, revenue grew by a solid 13% to US$3.8b. That's progress.
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 A. O. Smith's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are A. O. Smith Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$9.1b company like A. O. Smith. But we are reassured by the fact they have invested in the company. Given insiders own a significant chunk of shares, currently valued at US$65m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Well, based on the CEO pay, you'd argue that they are indeed. For companies with market capitalisations between US$4.0b and US$12b, like A. O. Smith, the median CEO pay is around US$8.2m.
A. O. Smith offered total compensation worth US$6.9m to its CEO in the year to December 2021. That is actually below the median for CEO's of similarly 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. It can also be a sign of good governance, more generally.
Is A. O. Smith Worth Keeping An Eye On?
As previously touched on, A. O. Smith is a growing business, which is encouraging. The fact that EPS is growing is a genuine positive for A. O. Smith, but the pleasant picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, you'd argue this one is worthy of the watchlist, at least. Still, you should learn about the 1 warning sign we've spotted with A. O. Smith.
Although A. O. Smith certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, 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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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.
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