It’s common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
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. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Federal Agricultural Mortgage with the means to add long-term value to shareholders.
See our latest analysis for Federal Agricultural Mortgage
How Quickly Is Federal Agricultural Mortgage Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Federal Agricultural Mortgage has grown EPS by 22% per year, compound, in the last three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
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. Not all of Federal Agricultural Mortgage’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. While we note Federal Agricultural Mortgage achieved similar EBIT margins to last year, revenue grew by a solid 14% to US$347m. That’s a real positive.
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.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Federal Agricultural Mortgage.
Are Federal Agricultural Mortgage Insiders Aligned With All Shareholders?
It’s pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. 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 1.5% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Should You Add Federal Agricultural Mortgage To Your Watchlist?
You can’t deny that Federal Agricultural Mortgage has grown its earnings per share at a very impressive rate. That’s attractive. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Federal Agricultural Mortgage’s continuing strength. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it’s a good stock to follow. You should always think about risks though. Case in point, we’ve spotted 1 warning sign for Federal Agricultural Mortgage you should be aware of.
Although Federal Agricultural Mortgage certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of companies that not only boast of strong growth but have also seen recent insider buying..
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Valuation is complex, but we’re helping make it simple.
Find out whether Federal Agricultural Mortgage is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
