I Ran A Stock Scan For Earnings Growth And Instabank (OB:INSTA) Passed With Ease

By
Simply Wall St
Published
December 23, 2020
OB:INSTA

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Instabank (OB:INSTA). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Instabank

How Quickly Is Instabank Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Who among us would not applaud Instabank's stratospheric annual EPS growth of 44%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. I note that Instabank's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Instabank reported flat revenue and EBIT margins over the last year. That's not a major concern but nor does it point to the long term growth we like to see.

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

earnings-and-revenue-history
OB:INSTA Earnings and Revenue History December 23rd 2020

Instabank isn't a huge company, given its market capitalization of kr479m. That makes it extra important to check on its balance sheet strength.

Are Instabank Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We note that Instabank insiders spent kr955k on stock, over the last year; in contrast, we didn't see any selling. That's nice to see, because it suggests insiders are optimistic. Zooming in, we can see that the biggest insider purchase was by Chief Executive Officer Robert Berg for kr336k worth of shares, at about kr1.20 per share.

I do like that insiders have been buying shares in Instabank, but there is more evidence of shareholder friendly management. Specifically, the CEO is paid quite reasonably for a company of this size. I discovered that the median total compensation for the CEOs of companies like Instabank with market caps under kr1.7b is about kr3.3m.

The Instabank CEO received kr2.5m 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. It can also be a sign of good governance, more generally.

Should You Add Instabank To Your Watchlist?

Instabank's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The company can also boast of insider buying, and reasonable remuneration for the CEO. It could be that Instabank is at an inflection point, given the EPS growth. For those chasing fast growth, then, I'd suggest to stock merits monitoring. Before you take the next step you should know about the 3 warning signs for Instabank (1 doesn't sit too well with us!) that we have uncovered.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Instabank, you'll probably love this free list of growing companies that insiders are buying.

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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