Should You Be Adding Bank of Montreal (TSE:BMO) To Your Watchlist Today?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Bank of Montreal (TSE:BMO). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Bank of Montreal

Bank of Montreal's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Bank of Montreal has managed to grow EPS by 20% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that Bank of Montreal's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While we note Bank of Montreal achieved similar EBIT margins to last year, revenue grew by a solid 13% to CA$32b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

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 Bank of Montreal's future profits.

Are Bank of Montreal Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The real kicker here is that Bank of Montreal insiders spent a staggering CA$3.4m on acquiring shares in just one year, without single share being sold in the meantime. Knowing this, Bank of Montreal will have have all eyes on them in anticipation for the what could happen in the near future. We also note that it was the Independent Chairman of the Board, George Cope, who made the biggest single acquisition, paying CA$2.2m for shares at about CA$129 each.

Along with the insider buying, another encouraging sign for Bank of Montreal is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at CA$28m. That's a lot of money, and no small incentive to work hard. Even though that's only about 0.03% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Does Bank of Montreal Deserve A Spot On Your Watchlist?

For growth investors, Bank of Montreal's raw rate of earnings growth is a beacon in the night. Furthermore, company insiders have been adding to their significant stake in the company. Astute investors will want to keep this stock on watch. It is worth noting though that we have found 1 warning sign for Bank of Montreal that you need to take into consideration.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Bank of Montreal, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.