It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. 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.
In contrast to all that, I prefer to spend time on companies like Bank of South Carolina (NASDAQ:BKSC), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Quickly Is Bank of South Carolina 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 means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Bank of South Carolina has grown EPS by 12% per year. 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. Not all of Bank of South Carolina’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. While we note Bank of South Carolina’s EBIT margins were flat over the last year, revenue grew by a solid 3.6% to US$19m. That’s progress.
Bank of South Carolina isn’t a huge company, given its market capitalization of US$104m. That makes it extra important to check on its balance sheet strength.
Are Bank of South Carolina Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We do note that, in the last year, insiders sold -US$38.5k worth of shares. But that’s far less than the US$2.1m insiders spend purchasing stock. I find this encouraging because it suggests they are optimistic about the Bank of South Carolina’s future. We also note that it was the President, Fleetwood Hassell, who made the biggest single acquisition, paying US$189k for shares at about US$18.92 each.
Along with the insider buying, another encouraging sign for Bank of South Carolina is that insiders, as a group, have a considerable shareholding. To be specific, they have US$21m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 21% of the company; visible skin in the game.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That’s because on our analysis the CEO, Fleetwood Hassell, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Bank of South Carolina with market caps under US$200m is about US$481k.
The Bank of South Carolina CEO received US$314k in compensation for the year ending December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me 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.
Should You Add Bank of South Carolina To Your Watchlist?
One important encouraging feature of Bank of South Carolina is that it is growing profits. 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. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Bank of South Carolina.
As a growth investor I do like to see insider buying. But Bank of South Carolina isn’t the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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