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Is Now The Time To Put AMERISAFE (NASDAQ:AMSF) On Your Watchlist?

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·4 min read
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like AMERISAFE (NASDAQ:AMSF). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for AMERISAFE

How Quickly Is AMERISAFE Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that AMERISAFE has managed to grow EPS by 23% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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. I note that AMERISAFE's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. AMERISAFE's EBIT margins have actually improved by 2.9 percentage points in the last year, to reach 35%, but, on the flip side, revenue was down 4.5%. That falls short of ideal.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

earnings-and-revenue-history
earnings-and-revenue-history

Fortunately, we've got access to analyst forecasts of AMERISAFE's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are AMERISAFE Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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.

It's good to see AMERISAFE insiders walking the walk, by spending US$791k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. We also note that it was the Independent Director, Sean Traynor, who made the biggest single acquisition, paying US$509k for shares at about US$63.59 each.

The good news, alongside the insider buying, for AMERISAFE bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$21m worth of its stock. That's a lot of money, and no small incentive to work hard. Even though that's only about 1.9% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Gerry Frost, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like AMERISAFE with market caps between US$400m and US$1.6b is about US$2.3m.

AMERISAFE offered total compensation worth US$1.9m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Does AMERISAFE Deserve A Spot On Your Watchlist?

You can't deny that AMERISAFE has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. Even so, be aware that AMERISAFE is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

As a growth investor I do like to see insider buying. But AMERISAFE isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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 (at) simplywallst.com.