Like a puppy chasing its tail, some new investors often chase ‘the next big thing’, even if that means buying ‘story stocks’ without 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.
So if you’re like me, you might be more interested in profitable, growing companies, like Capital Bancorp (NASDAQ:CBNK). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
Capital Bancorp’s Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Capital Bancorp managed to grow EPS by 11% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.
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. I note that Capital Bancorp’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Capital Bancorp’s EBIT margins were flat over the last year, revenue grew by a solid 20% to US$83m. That’s progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail check this interactive graph.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Capital Bancorp’s forecast profits?
Are Capital Bancorp Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Capital Bancorp insiders own a significant number of shares certainly appeals to me. Actually, with 39% of the company to their names, insiders are profoundly invested in the business. I’m reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. With that sort of holding, insiders have about US$78m riding on the stock, at current prices. That’s nothing to sneeze at!
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I’d say they are indeed. For companies with market capitalizations between US$100m and US$400m, like Capital Bancorp, the median CEO pay is around US$1.2m.
The Capital Bancorp CEO received US$764k in compensation for the year ending December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn’t a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.
Is Capital Bancorp Worth Keeping An Eye On?
As I already mentioned, Capital Bancorp is a growing business, which is what I like to see. The fact that EPS is growing is a genuine positive for Capital Bancorp, but the pretty picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Once you’ve identified a business you like, the next step is to consider what you think it’s worth. And right now is your chance to view our exclusive discounted cashflow valuation of Capital Bancorp. You might benefit from giving it a glance today.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.