Here's Why I Think Bank of Montreal (TSE:BMO) Is An Interesting Stock

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. 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 the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Bank of Montreal (TSE:BMO). 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. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for Bank of Montreal

How Quickly Is Bank of Montreal 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. Bank of Montreal managed to grow EPS by 12% per year, over three years. That's a pretty good rate, if the company can sustain it.

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. Not all of Bank of Montreal'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. Bank of Montreal maintained stable EBIT margins over the last year, all while growing revenue 12% to CA$25b. That's a real positive.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Bank of Montreal.

Are Bank of Montreal Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We do note that, in the last year, insiders sold -CA$2.6m worth of shares. But that's far less than the CA$4.0m insiders spend purchasing stock. I find this encouraging because it suggests they are optimistic about the Bank of Montreal's future. We also note that it was the Director, George Cope, who made the biggest single acquisition, paying CA$1.5m for shares at about CA$93.60 each.

On top of the insider buying, it's good to see that Bank of Montreal insiders have a valuable investment in the business. Indeed, they hold CA$35m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.06% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is Bank of Montreal Worth Keeping An Eye On?

One positive for Bank of Montreal is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. 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 Montreal.

As a growth investor I do like to see insider buying. But Bank of Montreal 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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.