Many investors, especially inexperienced ones, often buy shares in companies with a good history, even when those companies are making losses. Sometimes these stories can confuse investors and cause them to invest based on their emotions rather than the company’s good fundamentals. Loss-making companies are in a race against time to achieve financial sustainability, so investors in these companies may take more risks than they should.
In contrast, many investors prefer to focus on companies such as Amazon.com (NASDAQ:AMZN), which not only generates revenue but also profit. While that doesn’t necessarily mean the company is undervalued, the company’s profitability is enough to justify some appreciation in value – especially if it’s growing.
Check out our latest analysis for Amazon.com
How fast is Amazon.com growing?
If you believe that markets are even remotely efficient, then over the long term you would expect a company’s stock price to follow its earnings per share (EPS). Therefore, it makes sense for experienced investors to pay close attention to earnings per share when analyzing investments. Amazon.com has been able to grow its earnings per share by 13% per year over three years. That’s a good growth rate if it can be sustained.
Revenue growth is a good indicator of sustainable growth, and when combined with a high earnings before interest and taxes (EBIT) margin, it is a great way for a company to maintain its competitive advantage in the market. Amazon.com shareholders can take comfort in the fact that EBIT margins have increased from 3.4% to 9.0% and revenue is growing, both of which are excellent metrics for potential growth.
In the graph below you can see how the company has grown profit and revenue over time. Click on the graph to see the actual numbers.
Although we live in the present, there is little doubt that the future is of paramount importance when making investment decisions, so why not take a look at this interactive chart showing future EPS estimates for Amazon.com?
Are Amazon.com insiders on the same page as all shareholders?
Since Amazon.com has a market capitalization of $1.8 trillion, we wouldn’t expect insiders to own a large portion of the stock. But thanks to their investment in the company, it’s encouraging to see that there are still incentives to align their actions with shareholders. In fact, they have invested a significant amount in the company, currently valued at $196 billion. This level of insider involvement should be very encouraging to shareholders, as it ensures that the company’s leaders also see their success or failure reflected in the stock.
It means a lot when insiders invest in the company, but shareholders may wonder if the compensation policy is in their best interests. Looking at CEO salaries, one could argue that this is indeed the case. Our analysis found that the average total compensation of CEOs of companies like Amazon.com with a market capitalization of over $8.0 billion is around $13 million.
Amazon.com’s CEO received total compensation of just $1.7 million in the year ending December 2023. That’s clearly well below average, so this arrangement seems generous to shareholders at first glance and suggests a modest compensation culture. The level of CEO compensation is not the most important metric for investors, but when pay is modest, it supports greater alignment between the CEO and ordinary shareholders. It can also be a sign of a culture of integrity more broadly.
Should you add Amazon.com to your watchlist?
One key encouraging feature of Amazon.com is its rising earnings. The fact that earnings per share are rising is a real plus for Amazon.com, but there are even more encouraging prospects. With company insiders heavily invested in the company’s success and the CEO’s compensation modest, there is no argument that this stock is worth looking into. You could now try to form an opinion about Amazon.com by focusing only on these factors: or You could Also Consider how the price-earnings ratio compares to other companies in the industry.
While choosing stocks without growing earnings and without insider buying can certainly produce results, for investors who value these key metrics, here is a carefully curated list of U.S. companies with promising growth potential and insider confidence.
Please note that the insider transactions discussed in this article are reportable transactions in the respective jurisdiction.
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This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
