Here's Why We Think Pinnacle Financial Partners (NASDAQ:PNFP) Is Well Worth Watching

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Pinnacle Financial Partners (NASDAQ:PNFP). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out the opportunities and risks within the US Banks industry.

How Quickly Is Pinnacle Financial Partners Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. Pinnacle Financial Partners managed to grow EPS by 11% per year, over three years. That's a pretty good rate, if the company can sustain it.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. It's noted that Pinnacle Financial Partners' revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Pinnacle Financial Partners maintained stable EBIT margins over the last year, all while growing revenue 13% to US$1.4b. That's progress.

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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Pinnacle Financial Partners' future EPS 100% free.

Are Pinnacle Financial Partners Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$6.2b company like Pinnacle Financial Partners. But we do take comfort from the fact that they are investors in the company. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$133m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Pinnacle Financial Partners, with market caps between US$4.0b and US$12b, is around US$8.2m.

Pinnacle Financial Partners offered total compensation worth US$6.8m to its CEO in the year to December 2021. That comes in below the average for similar sized companies and seems pretty reasonable. 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 a culture of integrity, in a broader sense.

Is Pinnacle Financial Partners Worth Keeping An Eye On?

One positive for Pinnacle Financial Partners is that it is growing EPS. That's nice to see. Earnings growth might be the main attraction for Pinnacle Financial Partners, but the fun does not stop there. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. However, before you get too excited we've discovered 1 warning sign for Pinnacle Financial Partners that you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

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.