Here's Why Oak Valley Bancorp (NASDAQ:OVLY) Has Caught The Eye Of Investors

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. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like Oak Valley Bancorp (NASDAQ:OVLY), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Oak Valley Bancorp with the means to add long-term value to shareholders.

View our latest analysis for Oak Valley Bancorp

How Quickly Is Oak Valley Bancorp Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Oak Valley Bancorp's EPS has grown 34% 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 beaming.

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. Our analysis has highlighted that Oak Valley Bancorp's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. EBIT margins for Oak Valley Bancorp remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 43% to US$77m. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

Oak Valley Bancorp isn't a huge company, given its market capitalisation of US$231m. That makes it extra important to check on its balance sheet strength.

Are Oak Valley Bancorp Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's good to see Oak Valley Bancorp insiders walking the walk, by spending US$438k on shares in just twelve months. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. We also note that it was the Independent Director, H. Holder, who made the biggest single acquisition, paying US$115k for shares at about US$23.03 each.

The good news, alongside the insider buying, for Oak Valley Bancorp bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$45m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 20% of the company; visible skin in the game.

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. That's because on our analysis the CEO, Chris Courtney, is paid less than the median for similar sized companies. For companies with market capitalisations between US$100m and US$400m, like Oak Valley Bancorp, the median CEO pay is around US$1.6m.

The Oak Valley Bancorp CEO received US$829k in compensation for the year ending December 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Oak Valley Bancorp To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Oak Valley Bancorp'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. These things considered, this is one stock worth watching. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Oak Valley Bancorp.

The good news is that Oak Valley Bancorp 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. 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.