Stock Analysis

Is Now The Time To Put National Bank of Canada (TSE:NA) On Your Watchlist?

TSX:NA
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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like National Bank of Canada (TSE:NA). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide National Bank of Canada with the means to add long-term value to shareholders.

See our latest analysis for National Bank of Canada

National Bank of Canada's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. We can see that in the last three years National Bank of Canada grew its EPS by 17% per year. That's a good rate of growth, if it can be sustained.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Our analysis has highlighted that National Bank of Canada'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. EBIT margins for National Bank of Canada remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 11% to CA$9.5b. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
TSX:NA Earnings and Revenue History November 9th 2022

Fortunately, we've got access to analyst forecasts of National Bank of Canada's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are National Bank of Canada Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. 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.

The CA$375k worth of shares that insiders sold during the last 12 months pales in comparison to the CA$3.9m they spent on acquiring shares in the company. We find this encouraging because it suggests they are optimistic about National Bank of Canada'sfuture. We also note that it was the President, Laurent Ferreira, who made the biggest single acquisition, paying CA$1.4m for shares at about CA$96.74 each.

The good news, alongside the insider buying, for National Bank of Canada bulls is that insiders (collectively) have a meaningful investment in the stock. As a matter of fact, their holding is valued at CA$64m. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.2% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because National Bank of Canada's CEO, Laurent Ferreira, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like National Bank of Canada, with market caps over CA$11b, is about CA$10m.

National Bank of Canada offered total compensation worth CA$9.0m to its CEO in the year to October 2021. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is National Bank of Canada Worth Keeping An Eye On?

One positive for National Bank of Canada is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. However, before you get too excited we've discovered 1 warning sign for National Bank of Canada that you should be aware of.

The good news is that National Bank of Canada 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.

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

Find out whether National Bank of Canada 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.

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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.