Stock Analysis

With EPS Growth And More, Bank of Montreal (TSE:BMO) Makes An Interesting Case

Published
TSX:BMO
Source: Shutterstock

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Bank of Montreal (TSE:BMO). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Bank of Montreal with the means to add long-term value to shareholders.

Check out the opportunities and risks within the CA Banks industry.

How Fast Is Bank of Montreal 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) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Bank of Montreal's EPS has grown 20% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Our analysis has highlighted that Bank of Montreal's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Bank of Montreal maintained stable EBIT margins over the last year, all while growing revenue 15% to CA$30b. That's encouraging news for the company!

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
TSX:BMO Earnings and Revenue History December 1st 2022

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?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's nice to see that there have been no reports of any insiders selling shares in Bank of Montreal in the previous 12 months. So it's definitely nice that Independent Director Madhu Ranganathan bought CA$45k worth of shares at an average price of around CA$137. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Bank of Montreal.

The good news, alongside the insider buying, for Bank of Montreal bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have CA$26m worth of shares. This considerable investment should help drive long-term value in the business. Despite being just 0.03% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Does Bank of Montreal Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Bank of Montreal's strong EPS growth. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. These things considered, this is one stock worth watching. Still, you should learn about the 2 warning signs we've spotted with Bank of Montreal (including 1 which can't be ignored).

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.

Valuation is complex, but we're helping make it simple.

Find out whether Bank of Montreal is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis