Do Coastal Financial's (NASDAQ:CCB) Earnings Warrant Your Attention?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Coastal Financial (NASDAQ:CCB). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Our analysis indicates that CCB is potentially undervalued!

How Fast Is Coastal Financial Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Coastal Financial has managed to grow EPS by 36% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. It's noted that Coastal Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Coastal Financial maintained stable EBIT margins over the last year, all while growing revenue 120% to US$185m. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Coastal Financial.

Are Coastal Financial Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Although we did see some insider selling (worth US$191k) this was overshadowed by a mountain of buying, totalling US$1.5m in just one year. We find this encouraging because it suggests they are optimistic about Coastal Financial'sfuture. Zooming in, we can see that the biggest insider purchase was by Vice Chairman Andrew Skotdal for US$1m worth of shares, at about US$40.50 per share.

The good news, alongside the insider buying, for Coastal Financial bulls is that insiders (collectively) have a meaningful investment in the stock. We note that their impressive stake in the company is worth US$106m. This totals to 18% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

Does Coastal Financial Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Coastal Financial's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say that this stock may well deserve a spot on your watchlist. We should say that we've discovered 3 warning signs for Coastal Financial that you should be aware of before investing here.

Keen growth investors love to see insider buying. Thankfully, Coastal Financial 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.