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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'  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 Assured Guaranty (NYSE:AGO). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Assured Guaranty's Earnings Per Share Are Growing

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes.  Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS.   Assured Guaranty's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 46%.  Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.  

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.   It's noted that Assured Guaranty's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins.     On the one hand, Assured Guaranty's EBIT margins fell over the last year, but on the other hand, revenue grew.  If EBIT margins are able to stay balanced and this revenue growth continues, then we should see brighter days ahead.  

You can take a look at the company's revenue and earnings growth trend, in the chart below.  Click on the chart to see the exact numbers.

NYSE:AGO Earnings and Revenue History April 16th 2024

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Assured Guaranty's forecast profits?

Are Assured Guaranty Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market.  Assured Guaranty followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group.     We note that their impressive stake in the company is worth US$236m.   Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.  

Is Assured Guaranty Worth Keeping An Eye On?

Assured Guaranty's earnings per share growth have been climbing higher at an appreciable rate.   That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company.  The hope is, of course, that the strong growth marks a fundamental improvement in the business economics.  Based on the sum of its parts, we definitely think its worth watching Assured Guaranty very closely.     You should always think about risks though. Case in point, we've spotted   3 warning signs for Assured Guaranty  you should be aware of, and 1 of them shouldn't be ignored.  

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.

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.