Do Unity Bancorp's (NASDAQ:UNTY) Earnings Warrant Your Attention?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Unity Bancorp (NASDAQ:UNTY). 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.

View our latest analysis for Unity Bancorp

How Fast Is Unity Bancorp 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) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Shareholders will be happy to know that Unity Bancorp's EPS has grown 24% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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. Not all of Unity Bancorp's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. While we note Unity Bancorp achieved similar EBIT margins to last year, revenue grew by a solid 7.0% to US$98m. 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.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Unity Bancorp?

Are Unity Bancorp Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Insiders both bought and sold Unity Bancorp shares in the last year, but the good news is they spent US$28k more buying than they netted selling. When you weigh that up, it is a mild positive, indicating increased alignment between shareholders and management. We also note that it was the Founder & Chairman of the Board, David Dallas, who made the biggest single acquisition, paying US$245k for shares at about US$24.52 each.

Along with the insider buying, another encouraging sign for Unity Bancorp is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$25m worth of its stock. That's a lot of money, and no small incentive to work hard. As a percentage, this totals to 10% of the shares on issue for the business, an appreciable amount considering the market cap.

Does Unity Bancorp Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Unity Bancorp's strong EPS growth. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. Astute investors will want to keep this stock on watch. We don't want to rain on the parade too much, but we did also find 2 warning signs for Unity Bancorp (1 is significant!) that you need to be mindful of.

Keen growth investors love to see insider buying. Thankfully, Unity Bancorp isn't the only one. You can see a 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.