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. And in their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
In contrast to all that, I prefer to spend time on companies like Southside Bancshares (NASDAQ:SBSI), which has not only revenues, but also profits. Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. 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.
How Quickly Is Southside Bancshares Increasing Earnings Per Share?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. Over the last three years, Southside Bancshares has grown EPS by 7.1% per year. While that sort of growth rate isn’t amazing, it does show the business is growing.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company’s growth. I note that Southside Bancshares’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Southside Bancshares maintained stable EBIT margins over the last year, all while growing revenue 6.6% to US$205m. That’s progress.
The chart below shows how the company’s bottom and top lines have progressed over time.
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 Southside Bancshares’s future profits.
Are Southside Bancshares Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Not only did Southside Bancshares insiders refrain from selling stock during the year, but they also spent US$194k buying it. That puts the company in a nice light, as it makes me think its leaders are feeling confident. We also note that it was the , Tony Morgan, who made the biggest single acquisition, paying US$62k for shares at about US$31.15 each.
On top of the insider buying, it’s good to see that Southside Bancshares insiders have a valuable investment in the business. Given insiders own a small fortune of shares, currently valued at US$71m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Lee Gibson is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$400m and US$1.6b, like Southside Bancshares, the median CEO pay is around US$2.7m.
The Southside Bancshares CEO received US$1.6m in compensation for the year ending December 2018. That seems pretty reasonable, especially given its 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 Southside Bancshares To Your Watchlist?
As I already mentioned, Southside Bancshares is a growing business, which is what I like to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist – and arguably a research priority. If you think Southside Bancshares might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
The good news is that Southside Bancshares is not the only growth stock with insider buying. Here’s a list of them… 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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