If EPS Growth Is Important To You, MGE Energy (NASDAQ:MGEE) Presents An Opportunity
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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
In contrast to all that, many investors prefer to focus on companies like MGE Energy (NASDAQ:MGEE), which has not only revenues, but also profits. 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.
View our latest analysis for MGE Energy
How Quickly Is MGE Energy Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years MGE Energy grew its EPS by 5.7% per year. This may not be setting the world alight, but it does show that EPS is on the upwards trend.
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. MGE Energy's EBIT margins have actually improved by 2.3 percentage points in the last year, to reach 24%, but, on the flip side, revenue was down 8.5%. 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. Click on the chart to see the exact numbers.
While profitability drives the upside, prudent investors always check the balance sheet, too.
Are MGE Energy Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Not only did MGE Energy insiders refrain from selling stock during the year, but they also spent US$94k buying it. This is a good look for the company as it paints an optimistic picture for the future.
Recent insider purchases of MGE Energy stock is not the only way management has kept the interests of the general public shareholders in mind. Namely, MGE Energy has a very reasonable level of CEO pay. Our analysis has discovered that the median total compensation for the CEOs of companies like MGE Energy with market caps between US$2.0b and US$6.4b is about US$6.7m.
MGE Energy's CEO took home a total compensation package of US$2.6m in the year prior to December 2023. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. 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.
Does MGE Energy Deserve A Spot On Your Watchlist?
As previously touched on, MGE Energy is a growing business, which is encouraging. And there's more to MGE Energy, with the insider buying and modest CEO pay being a great look for those with an eye on the company. All things considered, MGE Energy is certainly displaying its merits and is worthy of taking research to the next step. You should always think about risks though. Case in point, we've spotted 2 warning signs for MGE Energy you should be aware of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of MGE Energy, you'll probably love this curated collection of companies in the US that have an attractive valuation alongside insider buying in the last three months.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com