With EPS Growth And More, Commerzbank (ETR:CBK) Makes An Interesting Case

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Commerzbank (ETR:CBK). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Check out our latest analysis for Commerzbank

Commerzbank's Improving Profits

Commerzbank has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. Commerzbank's EPS skyrocketed from €1.21 to €1.85, in just one year; a result that's bound to bring a smile to shareholders. That's a fantastic gain of 53%.

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. Not all of Commerzbank's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. EBIT margins for Commerzbank remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 12% to €10.0b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

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

Are Commerzbank Insiders Aligned With All Shareholders?

As a general rule, it's worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. The median total compensation for CEOs of companies similar in size to Commerzbank, with market caps over €7.4b, is around €4.6m.

Commerzbank offered total compensation worth €3.7m to its CEO in the year to December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Does Commerzbank Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Commerzbank's strong EPS growth. The fast growth bodes well while the very reasonable CEO pay assists builds some confidence in the board. Based on these factors, this stock may well deserve a spot on your watchlist, or even a little further research. What about risks? Every company has them, and we've spotted 1 warning sign for Commerzbank you should know about.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in DE with promising growth potential and insider confidence.

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.