Does Northeast Bank (NASDAQ:NBN) Deserve A Spot On Your Watchlist?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and 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 Northeast Bank (NASDAQ:NBN). 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.

See our latest analysis for Northeast Bank

Northeast Bank's Earnings Per Share Are Growing.

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, Northeast Bank's EPS has grown 26% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

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 Northeast Bank's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Northeast Bank maintained stable EBIT margins over the last year, all while growing revenue 21% to US$83m. 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.

Northeast Bank isn't a huge company, given its market capitalization of US$247m. That makes it extra important to check on its balance sheet strength.

Are Northeast Bank Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.

It's good to see Northeast Bank insiders walking the walk, by spending US$590k on shares in just twelve months. 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 President Richard Wayne who made the biggest single purchase, worth US$291k, paying US$14.57 per share.

The good news, alongside the insider buying, for Northeast Bank bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$29m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 12% of the company; visible skin in the game.

Should You Add Northeast Bank To Your Watchlist?

You can't deny that Northeast Bank has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. What about risks? Every company has them, and we've spotted 2 warning signs for Northeast Bank (of which 1 can't be ignored!) you should know about.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Northeast Bank, 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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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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