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.  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.  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.

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

AXIS Capital Holdings' Earnings Per Share Are Growing

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes.  So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research.   Recognition must be given to the that AXIS Capital Holdings has grown EPS by 55% per year, over the last three years.  That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.  

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.    AXIS Capital Holdings shareholders can take confidence from the fact that EBIT margins are up from 5.6% to 11%, and revenue is growing.  Ticking those two boxes is a good sign of growth, in our book.  

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.

NYSE:AXS Earnings and Revenue History June 20th 2024

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

Are AXIS Capital Holdings Insiders Aligned With All Shareholders?

Since AXIS Capital Holdings has a market capitalisation of US$6.0b, we wouldn't expect insiders to hold a large percentage of shares.  But we are reassured by the fact they have invested in the company.     Indeed, they hold US$38m worth of its stock.  That shows significant buy-in, and may indicate conviction in the business strategy.   While their ownership only accounts for 0.6%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to 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.  Our quick analysis into CEO remuneration would seem to indicate they are.    Our analysis has discovered that the median total compensation for the CEOs of companies like AXIS Capital Holdings with market caps between US$4.0b and US$12b is about US$8.5m.  

AXIS Capital Holdings offered total compensation worth US$6.8m to its CEO in the year to December 2023.  That seems pretty reasonable, especially given it's 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.

Should You Add AXIS Capital Holdings To Your Watchlist?

AXIS Capital Holdings' earnings have taken off in quite an impressive fashion.   An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management.  The sharp increase in earnings could signal good business momentum.  Big growth can make big winners, so the writing on the wall tells us that AXIS Capital Holdings is worth considering carefully.     We don't want to rain on the parade too much, but we did also find 1 warning sign for AXIS Capital Holdings that you need to be mindful of.  

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 significant insider holdings.

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