Do Kearny Financial's (NASDAQ:KRNY) Earnings Warrant Your Attention?

By
Simply Wall St
Published
March 18, 2021
NasdaqGS:KRNY

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. 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 Kearny Financial (NASDAQ:KRNY). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Kearny Financial

Kearny Financial's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Who among us would not applaud Kearny Financial's stratospheric annual EPS growth of 49%, compound, over the last three years? That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

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). I note that Kearny Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Kearny Financial maintained stable EBIT margins over the last year, all while growing revenue 9.5% to US$180m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGS:KRNY Earnings and Revenue History March 18th 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 Kearny Financial's future profits.

Are Kearny Financial Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Insiders both bought and sold Kearny Financial shares in the last year, but the good news is they spent US$10k more buying than they netted selling. When you weigh that up, it is a mild positive, indicating increased alignment between shareholders and management. It is also worth noting that it was Independent Director John McGovern who made the biggest single purchase, worth US$128k, paying US$8.02 per share.

Along with the insider buying, another encouraging sign for Kearny Financial is that insiders, as a group, have a considerable shareholding. To be specific, they have US$39m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 3.8% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Craig Montanaro is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$400m and US$1.6b, like Kearny Financial, the median CEO pay is around US$2.2m.

The Kearny Financial CEO received US$1.1m in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. 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 good governance, more generally.

Does Kearny Financial Deserve A Spot On Your Watchlist?

Kearny Financial's earnings have taken off like any random crypto-currency did, back in 2017. Just as heartening; insiders both own and are buying more stock. Because of the potential that it has reached an inflection point, I'd suggest Kearny Financial belongs on the top of your watchlist. It is worth noting though that we have found 2 warning signs for Kearny Financial that you need to take into consideration.

The good news is that Kearny Financial 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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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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