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 Veritex Holdings (NASDAQ:VBTX). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
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Veritex Holdings’s Earnings Per Share Are Growing.
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Veritex Holdings has grown EPS by 7.0% per year. While that sort of growth rate isn’t amazing, it does show the business is growing.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). I note that Veritex Holdings’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Veritex Holdings maintained stable EBIT margins over the last year, all while growing revenue 82% to US$165m. That’s a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
While we live in the present moment at all times, there’s no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Veritex Holdings?
Are Veritex 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. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.
It’s a pleasure to note that insiders spent US$1.0m buying Veritex Holdings shares, over the last year, without reporting any share sales whatsoever. As if for a flower bud approaching bloom, I become an expectant observer, anticipating with hope, that something splendid is coming. We also note that it was the Director, Mark Griege, who made the biggest single acquisition, paying US$650k for shares at about US$26.00 each.
The good news, alongside the insider buying, for Veritex Holdings bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$46m worth of its stock. That’s a lot of money, and no small incentive to work hard. Despite being just 3.2% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That’s because on our analysis the CEO, Charles Holland, is paid less than the median for similar sized companies. For companies with market capitalizations between US$1.0b and US$3.2b, like Veritex Holdings, the median CEO pay is around US$4.0m.
The CEO of Veritex Holdings only received US$1m in total compensation for the year ending December 2018. 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 Veritex Holdings To Your Watchlist?
One important encouraging feature of Veritex Holdings is that it is growing profits. On top of that, we’ve seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for my watchlist – and arguably a research priority. While we’ve looked at the quality of the earnings, we haven’t yet done any work to value the stock. So if you like to buy cheap, you may want to check if Veritex Holdings is trading on a high P/E or a low P/E, relative to its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Veritex 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
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.