Stock Analysis

Here's Why We Think Ames National (NASDAQ:ATLO) Is Well Worth Watching

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NasdaqCM:ATLO
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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. 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.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Ames National (NASDAQ:ATLO). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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.

See our latest analysis for Ames National

How Fast Is Ames National Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Ames National grew its EPS by 15% per year. That's a pretty good rate, if the company can sustain it.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of Ames National'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. While we note Ames National's EBIT margins were flat over the last year, revenue grew by a solid 19% to US$62m. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqCM:ATLO Earnings and Revenue History June 14th 2021

Ames National isn't a huge company, given its market capitalization of US$229m. That makes it extra important to check on its balance sheet strength.

Are Ames National 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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

It's good to see Ames National insiders walking the walk, by spending US$233k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. It is also worth noting that it was President & Director of First National Bank Scott Bauer who made the biggest single purchase, worth US$38k, paying US$18.79 per share.

I do like that insiders have been buying shares in Ames National, 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 Ames National with market caps between US$100m and US$400m is about US$1.0m.

The Ames National CEO received total compensation of just US$459k in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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 good governance, more generally.

Does Ames National Deserve A Spot On Your Watchlist?

As I already mentioned, Ames National is a growing business, which is what I like to see. And that's not all, folks. We've also seen insiders buying stock, and noted modest executive pay. If that doesn't automatically earn it a spot on your watchlist then I'd posit it warrants a closer look at the very least. Of course, just because Ames National 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 Ames National 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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What are the risks and opportunities for Ames National?

Ames National Corporation operates as a multi-bank holding company that provides banking products and services primarily in Boone, Clarke, Hancock, Marshall, Polk, Story, and Union counties in central, north-central, and south-central Iowa.

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Rewards

  • Trading at 34.4% below our estimate of its fair value

Risks

No risks detected for ATLO from our risks checks.

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