Stock Analysis

Does Signature Bank (NASDAQ:SBNY) Deserve A Spot On Your Watchlist?

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NasdaqGS:SBNY
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Signature Bank (NASDAQ:SBNY). 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.

View our latest analysis for Signature Bank

How Fast Is Signature Bank 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). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, Signature Bank's EPS has grown 29% 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 take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of Signature Bank'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. Signature Bank maintained stable EBIT margins over the last year, all while growing revenue 13% to US$1.5b. 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:SBNY Earnings and Revenue History June 17th 2021

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Signature Bank EPS 100% free.

Are Signature Bank Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$15b company like Signature Bank. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth US$317m. This suggests to me 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, I'd say they are indeed. For companies with market capitalizations over US$8.0b, like Signature Bank, the median CEO pay is around US$11m.

The Signature Bank CEO received US$6.7m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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.

Should You Add Signature Bank To Your Watchlist?

You can't deny that Signature Bank has grown its earnings per share at a very impressive rate. That's attractive. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. Each to their own, but I think all this makes Signature Bank look rather interesting indeed. What about risks? Every company has them, and we've spotted 1 warning sign for Signature Bank you should know about.

Although Signature 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.

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What are the risks and opportunities for Signature Bank?

Signature Bank provides commercial banking products and services.

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Rewards

  • Trading at 35.3% below our estimate of its fair value

  • Earnings grew by 47.9% over the past year

Risks

  • Earnings are forecast to decline by an average of 13.1% per year for the next 3 years

View all Risks and Rewards

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