If EPS Growth Is Important To You, Essential Utilities (NYSE:WTRG) Presents An Opportunity
Investing in companies before they’ve proven their worth with solid financial track records is often seen as an exciting opportunity. Nevertheless, history has shown that long-term investment success often hinges on profitability. A story can only take a company so far without the numbers to back it up. Eventually, a company’s lack of revenue and profit can lead to investor losses as their patience wears thin. Profitable companies, therefore, hold a particular allure, offering the promise of stability and potential for growth. Among such companies stands Essential Utilities (NYSE:WTRG), showcasing profitability as a foundational strength of its business model.
Understanding the growth in earnings per share (EPS) can provide significant insight into a company’s financial health and its future trajectory. This metric serves as a beacon for investors, highlighting potential investments that could yield favorable returns. Over the past three years, Essential Utilities has witnessed an annual EPS growth of 8.5%, a commendable rate that reflects positively on its potential for sustained success.
However, EPS growth is just one factor to consider. A deeper dive into the company’s performance reveals varying dimensions of its financial health. For instance, while Essential Utilities has seen an improvement in its EBIT margins, from 29% to 36%, it’s noteworthy that this has occurred alongside a revenue decline of 16%. These mixed signals underscore the complexities of evaluating a company’s overall growth quality.
In assessing a company’s prospects, the involvement and investment of insiders can also be telling. Stakeholders in Essential Utilities, even though it’s a large-cap entity with a market capitalization of US$11b, can take comfort in knowing that insiders have a vested interest in the company’s success, holding US$24m worth of shares. This alignment between the leadership and shareholders could potentially drive long-term value.
The relationship between company leadership and shareholder interests doesn’t end with insider shareholdings. Executive compensation also plays a crucial role. In the case of Essential Utilities, the CEO’s total compensation is well below the median for companies of similar market capitalization, signaling a commitment to shareholder value over personal gain.
The elements of EPS growth, insider ownership, and executive remuneration converge to form a compelling narrative for Essential Utilities. With a track record of profit generation and a corporate structure that appears conducive to shareholder value, Essential Utilities emerges as an attractive prospect for those prioritizing earnings growth. Nevertheless, it’s crucial to approach investment decisions with a balanced perspective, acknowledging the potential risks alongside the opportunities.
While Essential Utilities exemplifies several positive attributes, it’s important to heed any warning signs that may emerge. As with any investment, conducting thorough due diligence is key to navigating potential pitfalls and capitalizing on opportunities for growth.
The intricate dance between profitability, insider alignment, and reasonable executive remuneration paints a promising picture for Essential Utilities. For investors drawn to companies with solid earnings growth and a corporate culture that values shareholder interests, Essential Utilities warrants attention. However, success in investing requires not just recognizing the signs of potential growth but also being vigilant about the challenges that lie ahead.
