Here's Why I Think Canadian Western Bank (TSE:CWB) Is An Interesting Stock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like Canadian Western Bank (TSE:CWB). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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 Canadian Western Bank

Canadian Western Bank's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Canadian Western Bank managed to grow EPS by 7.6% per year, over three years. While that sort of growth rate isn't amazing, it does show the business is growing.

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 Canadian Western Bank's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Canadian Western Bank's EBIT margins were flat over the last year, revenue grew by a solid 18% to CA$935m. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Canadian Western Bank's forecast profits?

Are Canadian Western Bank Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Although we did see some insider selling (worth -CA$702k) this was overshadowed by a mountain of buying, totalling CA$2.3m in just one year. This makes me even more interested in Canadian Western Bank because it suggests that those who understand the company best, are optimistic. It is also worth noting that it was Daryl MacLellan who made the biggest single purchase, worth CA$1.5m, paying CA$35.89 per share.

The good news, alongside the insider buying, for Canadian Western Bank bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold CA$26m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Chris Fowler, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Canadian Western Bank with market caps between CA$2.5b and CA$8.1b is about CA$3.6m.

The Canadian Western Bank CEO received CA$2.7m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Canadian Western Bank To Your Watchlist?

One important encouraging feature of Canadian Western Bank is that it is growing profits. 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. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Canadian Western Bank that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Canadian Western Bank, 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.

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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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