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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Sandnesrebank (OB:SADG). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Quickly Is Sandnesrebank Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). It’s no surprise, then, that I like to invest in companies with EPS growth. Who among us would not applaud Sandnesrebank’s stratospheric annual EPS growth of 50%, compound, over the last three years? While that sort of growth rate isn’t sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.
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 Sandnesrebank’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. Sandnesrebank maintained stable EBIT margins over the last year, all while growing revenue 12% to kr574m. That’s a real positive.
While we live in the present moment at all times, there’s no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Sandnesrebank?
Are Sandnesrebank Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.
Not only did Sandnesrebank insiders refrain from selling stock during the year, but they also spent kr1.6m buying it. That puts the company in a nice light, as it makes me think its leaders are feeling confident. Zooming in, we can see that the biggest insider purchase was by Director Sven Ulvatne for kr603k worth of shares, at about kr64.85 per share.
On top of the insider buying, it’s good to see that Sandnesrebank insiders have a valuable investment in the business. To be specific, they have kr108m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 7.5% of the company; visible skin in the game.
Does Sandnesrebank Deserve A Spot On Your Watchlist?
Sandnesrebank’s earnings per share have taken off like a rocket aimed right at the moon. If you’re like me, you’ll find it hard to ignore that sort of explosive EPS growth. And in fact, it could well signal a fundamental shift in the business economics. For me, this situation certainly piques my interest. Of course, just because Sandnesrebank is growing does not mean it is undervalued. If you’re wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
The good news is that Sandnesrebank 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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.