Yahoo Finance Should You Be Adding American Woodmark (NASDAQ:AMWD) To Your Watchlist 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in American Woodmark (NASDAQ:AMWD). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for American Woodmark
American Woodmark's Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Impressively, American Woodmark has grown EPS by 22% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. American Woodmark's EBIT margins have actually improved by 3.1 percentage points in the last year, to reach 8.7%, but, on the flip side, revenue was down 10%. While not disastrous, these figures could be better.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for American Woodmark's future EPS 100% free.
Are American Woodmark 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. So it is good to see that American Woodmark insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at US$15m. That's a lot of money, and no small incentive to work hard. Even though that's only about 1.0% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary 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. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to American Woodmark, with market caps between US$1.0b and US$3.2b, is around US$5.7m.
American Woodmark's CEO took home a total compensation package worth US$4.6m in the year leading up to April 2023. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is American Woodmark Worth Keeping An Eye On?
If you believe that share price follows earnings per share you should definitely be delving further into American Woodmark's strong EPS growth. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. This may only be a fast rundown, but the key takeaway is that American Woodmark is worth keeping an eye on. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of American Woodmark.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by recent insider purchases.
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.
