Do Guaranty Bancshares's (NASDAQ:GNTY) Earnings Warrant Your Attention?

By
Simply Wall St
Published
January 20, 2021
NasdaqGS:GNTY
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Guaranty Bancshares (NASDAQ:GNTY), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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 Guaranty Bancshares

How Fast Is Guaranty Bancshares 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. It certainly is nice to see that Guaranty Bancshares has managed to grow EPS by 20% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

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 Guaranty Bancshares'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 Guaranty Bancshares's EBIT margins were flat over the last year, revenue grew by a solid 5.5% to US$100m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NasdaqGS:GNTY Earnings and Revenue History January 21st 2021

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 Guaranty Bancshares's future profits.

Are Guaranty Bancshares 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. 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$881k) this was overshadowed by a mountain of buying, totalling US$1.9m in just one year. This makes me even more interested in Guaranty Bancshares because it suggests that those who understand the company best, are optimistic. Zooming in, we can see that the biggest insider purchase was by Independent Director Richard Baker for US$385k worth of shares, at about US$27.00 per share.

On top of the insider buying, it's good to see that Guaranty Bancshares insiders have a valuable investment in the business. Given insiders own a small fortune of shares, currently valued at US$82m, they have plenty of motivation to push the business to succeed. That holding amounts to 23% of the stock on issue, thus making insiders influential, and aligned, owners of the business.

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. The cherry on top is that the CEO, Ty Abston is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Guaranty Bancshares with market caps between US$200m and US$800m is about US$1.6m.

Guaranty Bancshares offered total compensation worth US$882k to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Does Guaranty Bancshares Deserve A Spot On Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Guaranty Bancshares's strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. We should say that we've discovered 2 warning signs for Guaranty Bancshares that you should be aware of before investing here.

As a growth investor I do like to see insider buying. But Guaranty Bancshares 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. 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.
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