Here’s Why ACI Worldwide (NASDAQ:ACIW) Has Grabbed Investors’ Attention

It is common for many investors, especially those who are inexperienced, to buy shares of companies that have a good history even if those companies are loss-making. Sometimes these stories can cloud investors’ minds, causing them to invest based on their emotions rather than based on the company’s sound fundamentals. A loss-making company has not yet proven itself in terms of profits and, eventually, the inflow of external capital may dry up.

If this type of business is not your style, you like businesses that generate revenue, and even make a profit, then you might be interested in ACI in the world (NASDAQ:ACIW). While this doesn’t necessarily mean it’s undervalued, the company’s profitability is enough to warrant some appreciation, especially if it’s growing.

Check out our latest analysis for ACI Worldwide

ACI Worldwide’s earnings per share are growing

The market is a voting machine in the short term, but a weighing machine in the long term, so the expectation is that the share price will eventually follow the earnings per share (EPS) results. This makes EPS growth an attractive quality for any company. It’s certainly nice to see that ACI Worldwide has managed to grow EPS by 19% per year over three years. As a general rule, we’d say that if a company can keep up that some kind of growth, shareholders will be delighted.

One way to check a company’s growth is to look at how its revenue and earnings before interest and tax (EBIT) margins are changing. The good news is that ACI Worldwide is growing revenue and its EBIT margins improved by 6.1 percentage points to 19% over the last year. It’s great to see, on both counts.

In the chart below, you can see how the company has grown its profits and revenue over time. To see the actual numbers, click on the chart.

The trick, as an investor, is to find companies that are go to perform in the future, not just in the past. While crystal balls don’t exist, you can check out our visualization of analyst consensus forecasts for ACI Worldwide’s future EPS, 100% free.

Are ACI Worldwide insiders aligned with all shareholders?

It’s nice to see business leaders putting their money on the line, so to speak, because it improves the alignment of incentives between the people running the business and its true owners. Shareholders will be pleased that insiders own ACI Worldwide shares worth a considerable amount of money. In fact, they hold $38 million of its shares. This considerable investment is expected to help generate long-term value for the company. Even if their stake represents only 0.9%, the stakes remain considerable to encourage the company to maintain a strategy which will bring value to shareholders.

It’s good to see insiders invested in the company, but are the compensation levels reasonable? A brief analysis of CEO compensation suggests that this is the case. The median total compensation for CEOs of companies similar in size to ACI Worldwide, with market caps between $2.0 billion and $6.4 billion, is approximately $6.7 million.

The CEO of ACI Worldwide received compensation of $5.2 million for the year ending December 2023. This figure is lower than the average for companies of similar size and seems quite reasonable. CEO compensation isn’t really the most important aspect of a company to consider, but when it’s reasonable, it provides a little more confidence that executives are looking out for shareholders’ interests. In general, it can be argued that reasonable compensation levels demonstrate good decision-making.

Should you add ACI Worldwide to your watchlist?

For growth investors, ACI Worldwide’s raw earnings growth rate is a beacon in the night. If you still have doubts, also remember that company insiders have a considerable investment to align with shareholders, and CEO compensation is quite modest compared to similarly sized companies. The main message here is that ACI Worldwide has underlying strengths that are worth looking at. Still, know that ACI Worldwide has 2 warning signs in our investment analysis you should know…

It is still possible to succeed by buying stocks that are not growing revenues and not have insiders buying shares. But for those who consider these parameters important, we encourage you to consult companies that TO DO have these characteristics. You can access a personalized list of companies that have demonstrated growth supported by significant insider holdings.

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

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to constitute financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or your financial situation. Our goal is to provide you with targeted, long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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