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. 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.
So if you're like me, you might be more interested in profitable, growing companies, like Sandnes Sparebank (OB:SADG). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Sandnes Sparebank's Earnings Per Share Are Growing.
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). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, Sandnes Sparebank's EPS has grown 19% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
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. I note that Sandnes Sparebank's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Sandnes Sparebank's EBIT margins were flat over the last year, revenue grew by a solid 12% to kr642m. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Sandnes Sparebank's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Sandnes Sparebank Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
First things first; I didn't see insiders sell Sandnes Sparebank shares in the last year. But the really good news is that Chairman of the Board Harald Espedal spent kr4.9m buying stock stock, at an average price of around kr65.30. To me that means at least one insider thinks that the company is doing well - and they are backing that view with cash.
On top of the insider buying, it's good to see that Sandnes Sparebank insiders have a valuable investment in the business. To be specific, they have kr168m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 8.9% of the company; visible skin in the game.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Trine Karin Stangeland, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Sandnes Sparebank with market caps between kr833m and kr3.3b is about kr4.0m.
Sandnes Sparebank offered total compensation worth kr3.2m to its CEO in the year to . 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. It can also be a sign of a culture of integrity, in a broader sense.
Is Sandnes Sparebank Worth Keeping An Eye On?
You can't deny that Sandnes Sparebank has grown its earnings per share at a very impressive rate. That's attractive. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Sandnes Sparebank , and understanding this should be part of your investment process.
The good news is that Sandnes Sparebank is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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