Stock Analysis

Here's Why I Think Meridian (NASDAQ:MRBK) Is An Interesting Stock

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NasdaqGS:MRBK
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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Meridian (NASDAQ:MRBK). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. 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.

See our latest analysis for Meridian

How Fast Is Meridian Growing Its Earnings Per Share?

In the last three years Meridian's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like the last firework on New Year's Eve accelerating into the sky, Meridian's EPS shot from US$1.52 to US$3.30, over the last year. Year on year growth of 118% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. I note that Meridian's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Meridian maintained stable EBIT margins over the last year, all while growing revenue 62% to US$104m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NasdaqGS:MRBK Earnings and Revenue History December 14th 2020

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Meridian EPS 100% free.

Are Meridian Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Any way you look at it Meridian shareholders can gain quiet confidence from the fact that insiders shelled out US$447k to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. It is also worth noting that it was Director Robert Casciato who made the biggest single purchase, worth US$100k, paying US$18.25 per share.

On top of the insider buying, it's good to see that Meridian insiders have a valuable investment in the business. To be specific, they have US$14m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 10% of the company; visible skin in the game.

Does Meridian Deserve A Spot On Your Watchlist?

Meridian's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. What's more insiders own a significant stake in the company and have been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest Meridian belongs on the top of your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Meridian (at least 2 which shouldn't be ignored) , and understanding these should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Meridian, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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