Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like American Coastal Insurance (NASDAQ:ACIC). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

How Fast Is American Coastal Insurance Growing Its Earnings Per Share?

Over the last three years, American Coastal Insurance has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. American Coastal Insurance's EPS has risen over the last 12 months, growing from US$1.59 to US$1.76. There's little doubt shareholders would be happy with that 10% gain.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. This approach makes American Coastal Insurance look pretty good, on balance; although revenue is flattish, EBIT margins improved from 27% to 40% in the last year. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are American Coastal Insurance 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. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

In the last year insider at American Coastal Insurance were both selling and buying shares; but happily, as a group they spent US$97k more on stock, than they netted from selling it. Shareholders who may have questioned insiders selling will find some reassurance in this fact. It is also worth noting that it was Independent Director Michael Hogan who made the biggest single purchase, worth US$91k, paying US$11.37 per share.

On top of the insider buying, we can also see that American Coastal Insurance insiders own a large chunk of the company. Owning 49% of the company, insiders have plenty riding on the performance of the the share price. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. at the current share price. This is an incredible endorsement from them.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Dan Peed is paid comparatively modestly to CEOs at similar sized companies. The median total compensation for CEOs of companies similar in size to American Coastal Insurance, with market caps between US$400m and US$1.6b, is around US$3.2m.

American Coastal Insurance's CEO took home a total compensation package of US$176k in the year prior to December 2023. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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.

Should You Add American Coastal Insurance To Your Watchlist?

One positive for American Coastal Insurance is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for American Coastal Insurance (1 is a bit concerning) you should be aware of.

The good news is that American Coastal Insurance is not the only stock with insider buying. Here's a list of small cap, undervalued companies in the US with 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.