Should You Be Adding Thurgauer Kantonalbank (VTX:TKBP) To Your Watchlist Today?

By
Simply Wall St
Published
September 11, 2021
SWX:TKBP
Source: Shutterstock

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Thurgauer Kantonalbank (VTX:TKBP). 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. 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.

See our latest analysis for Thurgauer Kantonalbank

Thurgauer Kantonalbank's Improving Profits

Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. Thurgauer Kantonalbank has grown its trailing twelve month EPS from CHF6.67 to CHF7.14, in the last year. That's a modest gain of 7.1%.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of Thurgauer Kantonalbank's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. While we note Thurgauer Kantonalbank's EBIT margins were flat over the last year, revenue grew by a solid 4.2% to CHF359m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
SWX:TKBP Earnings and Revenue History September 12th 2021

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Thurgauer Kantonalbank's balance sheet strength, before getting too excited.

Are Thurgauer Kantonalbank Insiders Aligned With All Shareholders?

As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. I discovered that the median total compensation for the CEOs of companies like Thurgauer Kantonalbank with market caps between CHF918m and CHF2.9b is about CHF1.2m.

The Thurgauer Kantonalbank CEO received CHF1.0m in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. 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.

Does Thurgauer Kantonalbank Deserve A Spot On Your Watchlist?

As I already mentioned, Thurgauer Kantonalbank is a growing business, which is what I like to see. On top of that, my faith in the board of directors is strengthened by the fact of the reasonable CEO pay. So I do think the stock deserves further research, if not instant addition to your watchlist. We should say that we've discovered 1 warning sign for Thurgauer Kantonalbank that you should be aware of before investing here.

Although Thurgauer Kantonalbank certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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

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