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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like American Coastal Insurance (NASDAQ:ACIC). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide American Coastal Insurance with the means to add long-term value to shareholders.

View our latest analysis for American Coastal Insurance

American Coastal Insurance's Improving Profits

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. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, American Coastal Insurance's EPS grew from US$0.61 to US$1.50, over the previous 12 months. It's a rarity to see 145% year-on-year growth like that.

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. Unfortunately, American Coastal Insurance's revenue dropped 15% last year, but the silver lining is that EBIT margins improved from 13% to 38%. That falls short of ideal.

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 American Coastal Insurance Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

American Coastal Insurance insiders both bought and sold shares over the last twelve months, but they did end up spending US$33k more on stock than they received from selling it. When you weigh that up, it is a mild positive, indicating increased alignment between shareholders and management.

And the insider buying isn't the only sign of alignment between shareholders and the board, since American Coastal Insurance insiders own more than a third of the company. Actually, with 49% of the company to their names, insiders are profoundly invested in the business. Shareholders and speculators should be reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. at the current share price. That means they have plenty of their own capital riding on the performance of the business!

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because American Coastal Insurance's CEO, Dan Peed, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like American Coastal Insurance with market caps between US$200m and US$800m is about US$2.4m.

The CEO of American Coastal Insurance only received US$176k in total compensation for the year ending December 2023. First impressions seem to indicate a compensation policy that is favourable to shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Does American Coastal Insurance Deserve A Spot On Your Watchlist?

American Coastal Insurance's earnings per share growth have been climbing higher at an appreciable rate. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest American Coastal Insurance belongs near the top of your watchlist. You still need to take note of risks, for example - American Coastal Insurance has 1 warning sign we think 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.