Does CSB Bank (NSE:CSBBANK) Deserve A Spot On Your Watchlist?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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

Check out our latest analysis for CSB Bank

How Fast Is CSB Bank Growing Its Earnings Per Share?

In the last three years CSB Bank's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. It's good to see that CSB Bank's EPS has grown from ₹29.51 to ₹32.57 over twelve months. There's little doubt shareholders would be happy with that 10% gain.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that CSB Bank's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for CSB Bank remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 18% to ₹18b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

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 CSB Bank's balance sheet strength, before getting too excited.

Are CSB Bank Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. So it is good to see that CSB Bank insiders have a significant amount of capital invested in the stock. To be specific, they have ₹3.7b worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 6.5% of the company; visible skin in the game.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to CSB Bank, with market caps between ₹33b and ₹132b, is around ₹34m.

CSB Bank offered total compensation worth ₹19m to its CEO in the year to March 2023. That comes in below the average for similar sized companies and seems pretty reasonable. 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. It can also be a sign of a culture of integrity, in a broader sense.

Does CSB Bank Deserve A Spot On Your Watchlist?

One important encouraging feature of CSB Bank is that it is growing profits. The fact that EPS is growing is a genuine positive for CSB Bank, but the pleasant picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, you'd argue this one is worthy of the watchlist, at least. Now, you could try to make up your mind on CSB Bank by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

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.