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.
So if you’re like me, you might be more interested in profitable, growing companies, like QCR Holdings (NASDAQ:QCRH). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
How Fast Is QCR Holdings Growing?
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). It’s no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, QCR Holdings’s EPS has grown 21% 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.
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. Not all of QCR Holdings’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. QCR Holdings maintained stable EBIT margins over the last year, all while growing revenue 24% to US$171m. That’s progress.
The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.
You don’t drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for QCR Holdings’s future profits.
Are QCR Holdings Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
Despite -US$101.3k worth of sales, QCR Holdings insiders have overwhelmingly been buying the stock, spending US$771k on purchases in the last twelve months. You could argue that level of buying implies genuine confidence in the business. Zooming in, we can see that the biggest insider purchase was by Michael Peterson for US$670k worth of shares, at about US$33.51 per share.
Along with the insider buying, another encouraging sign for QCR Holdings is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$36m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 6.5% of the company, demonstrating a degree of high-level alignment with shareholders.
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. The cherry on top is that the CEO, Doug Hultquist is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$200m and US$800m, like QCR Holdings, the median CEO pay is around US$1.6m.
The QCR Holdings CEO received US$986k in compensation for the year ending December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. While the level of CEO compensation isn’t a huge factor in my view of the company, 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.
Does QCR Holdings Deserve A Spot On Your Watchlist?
You can’t deny that QCR Holdings has grown its earnings per share at a very impressive rate. That’s attractive. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it’s fair to say I think this stock may well deserve a spot on your watchlist. Of course, just because QCR Holdings is growing does not mean it is undervalued. If you’re wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of QCR Holdings, 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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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.