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. 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.
So if you’re like me, you might be more interested in profitable, growing companies, like Southern Missouri Bancorp (NASDAQ:SMBC). Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Southern Missouri Bancorp’s Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, Southern Missouri Bancorp’s EPS has grown 17% each year, compound, over three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.
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 Southern Missouri Bancorp’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 Southern Missouri Bancorp’s EBIT margins were flat over the last year, revenue grew by a solid 17% to US$88m. 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.
While it’s always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Southern Missouri Bancorp’s balance sheet strength, before getting too excited.
Are Southern Missouri Bancorp Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I’m encouraged by the fact that insiders own Southern Missouri Bancorp shares worth a considerable sum. Given insiders own a small fortune of shares, currently valued at US$57m, they have plenty of motivation to push the business to succeed. At 17% of the company, the co-investment by insiders gives me confidence that management will make long-term focussed decisions.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I’d say they are indeed. For companies with market capitalizations between US$200m and US$800m, like Southern Missouri Bancorp, the median CEO pay is around US$1.7m.
The CEO of Southern Missouri Bancorp only received US$552k in total compensation for the year ending June 2019. That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Southern Missouri Bancorp To Your Watchlist?
You can’t deny that Southern Missouri Bancorp 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. This may only be a fast rundown, but the takeaway for me is that Southern Missouri Bancorp is worth keeping an eye on. Once you’ve identified a business you like, the next step is to consider what you think it’s worth. And right now is your chance to view our exclusive discounted cashflow valuation of Southern Missouri Bancorp. You might benefit from giving it a glance today.
Although Southern Missouri Bancorp 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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