Here's Why We Think Clearway Energy (NYSE:CWEN.A) Might Deserve Your Attention Today

Simply Wall St
·4 min read

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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Clearway Energy (NYSE:CWEN.A). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Clearway Energy with the means to add long-term value to shareholders.

Check out our latest analysis for Clearway Energy

How Fast Is Clearway Energy Growing Its Earnings Per Share?

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It is awe-striking that Clearway Energy's EPS went from US$0.29 to US$4.81 in just one year. Even though that growth rate may not be repeated, that looks like a breakout improvement.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. It seems Clearway Energy is pretty stable, since revenue and EBIT margins are pretty flat year on year. While this doesn't ring alarm bells, it may not meet the expectations of growth-minded investors.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

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

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Clearway Energy's future profits.

Are Clearway Energy Insiders Aligned With All Shareholders?

Since Clearway Energy has a market capitalisation of US$6.3b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. As a matter of fact, their holding is valued at US$13m. That's a lot of money, and no small incentive to work hard. Despite being just 0.2% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Clearway Energy, with market caps between US$4.0b and US$12b, is around US$8.0m.

Clearway Energy's CEO took home a total compensation package of US$3.1m in the year prior to December 2021. 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.

Does Clearway Energy Deserve A Spot On Your Watchlist?

Clearway Energy's 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 drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Clearway Energy certainly ticks a few boxes, so we think it's probably well worth further consideration. Before you take the next step you should know about the 4 warning signs for Clearway Energy (2 are a bit concerning!) that we have uncovered.

Although Clearway Energy certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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