Here's Why I Think BNK Banking (ASX:BBC) Might Deserve Your Attention Today

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 as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like BNK Banking (ASX:BBC), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for BNK Banking

How Fast Is BNK Banking Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. I, for one, am blown away by the fact that BNK Banking has grown EPS by 47% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

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 BNK Banking's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. BNK Banking maintained stable EBIT margins over the last year, all while growing revenue 18% to AU$41m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since BNK Banking is no giant, with a market capitalization of AU$117m, so you should definitely check its cash and debt before getting too excited about its prospects.

Are BNK Banking Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own BNK Banking shares worth a considerable sum. To be specific, they have AU$27m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 23% of the company; visible skin in the game.

Is BNK Banking Worth Keeping An Eye On?

BNK Banking's earnings have taken off like any random crypto-currency did, back in 2017. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So to my mind BNK Banking is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Before you take the next step you should know about the 4 warning signs for BNK Banking (1 is concerning!) that we have uncovered.

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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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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