Does Pareto Bank (OB:PARB) Deserve A Spot On Your Watchlist?

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 completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like Pareto Bank (OB:PARB). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.

View our latest analysis for Pareto Bank

How Fast Is Pareto Bank Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. Over the last three years, Pareto Bank has grown EPS by 9.1% per year. That's a pretty good rate, if the company can sustain it.

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 Pareto Bank's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Pareto Bank maintained stable EBIT margins over the last year, all while growing revenue 17% to kr831m. 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.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Pareto Bank's future profits.

Are Pareto Bank Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We haven't seen any insiders selling Pareto Bank shares, in the last year. With that in mind, it's heartening that Gro Wolf-Sørensen, the of the company, paid kr255k for shares at around kr51.00 each.

Along with the insider buying, another encouraging sign for Pareto Bank is that insiders, as a group, have a considerable shareholding. To be specific, they have kr265m 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 insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Tiril Villum, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Pareto Bank with market caps between kr1.8b and kr7.0b is about kr4.9m.

The Pareto Bank CEO received kr4.4m in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.

Does Pareto Bank Deserve A Spot On Your Watchlist?

One important encouraging feature of Pareto Bank is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist - and arguably a research priority. What about risks? Every company has them, and we've spotted 1 warning sign for Pareto Bank you should know about.

As a growth investor I do like to see insider buying. But Pareto Bank isn't the only one. You can see a 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.