Stock Analysis

Is Now The Time To Put Preferred Bank (NASDAQ:PFBC) On Your Watchlist?

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NasdaqGS:PFBC
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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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In contrast to all that, I prefer to spend time on companies like Preferred Bank (NASDAQ:PFBC), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. 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 Preferred Bank

How Fast Is Preferred Bank 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. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Preferred Bank grew its EPS by 12% per year. That's a good rate of growth, if it can be sustained.

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. I note that Preferred Bank's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Preferred Bank's EBIT margins were flat over the last year, revenue grew by a solid 31% to US$195m. 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.

earnings-and-revenue-history
NasdaqGS:PFBC Earnings and Revenue History April 4th 2022

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Preferred Bank.

Are Preferred Bank Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Preferred Bank insiders have a significant amount of capital invested in the stock. Given insiders own a small fortune of shares, currently valued at US$86m, they have plenty of motivation to push the business to succeed. At 8.0% of the company, the co-investment by insiders gives me confidence that management will make long-term focussed decisions.

Should You Add Preferred Bank To Your Watchlist?

One positive for Preferred Bank is that it is growing EPS. That's nice to see. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination sparks joy for me, so I'd consider keeping the company on a watchlist. It is worth noting though that we have found 2 warning signs for Preferred Bank that you need to take into consideration.

Although Preferred Bank certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

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

Valuation is complex, but we're helping make it simple.

Find out whether Preferred Bank is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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