Stock Analysis

With EPS Growth And More, Canadian Western Bank (TSE:CWB) Is Interesting

TSX:CWB
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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 contrast to all that, I prefer to spend time on companies like Canadian Western Bank (TSE:CWB), which has not only revenues, but also profits. 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. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Canadian Western Bank

How Fast Is Canadian Western Bank Growing?

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. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years Canadian Western Bank grew its EPS by 5.5% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. 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. Canadian Western Bank maintained stable EBIT margins over the last year, all while growing revenue 11% to CA$883m. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

earnings-and-revenue-history
TSX:CWB Earnings and Revenue History May 31st 2021

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 standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

In the last year insider at Canadian Western Bank were both selling and buying shares; but happily, as a group they spent CA$78k more on stock, than they netted from selling it. Although I don't particularly like to see selling, the fact that they put more capital in, than they extracted, is a positive in my mind. We also note that it was the , Irfhan Rawji, who made the biggest single acquisition, paying CA$164k for shares at about CA$32.25 each.

On top of the insider buying, it's good to see that Canadian Western Bank insiders have a valuable investment in the business. To be specific, they have CA$25m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.8% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Chris Fowler, is paid less than the median for similar sized companies. For companies with market capitalizations between CA$2.4b and CA$7.7b, like Canadian Western Bank, the median CEO pay is around CA$3.9m.

Canadian Western Bank offered total compensation worth CA$2.7m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Is Canadian Western Bank Worth Keeping An Eye On?

As I already mentioned, Canadian Western Bank is a growing business, which is what I like to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. Still, you should learn about the 1 warning sign we've spotted with Canadian Western Bank .

The good news is that Canadian Western Bank is not the only growth stock with insider buying. Here's a list of them... 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. 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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