For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In contrast to all that, I prefer to spend time on companies like Westamerica Bancorporation (NASDAQ:WABC), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Westamerica Bancorporation'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. It's no surprise, then, that I like to invest in companies with EPS growth. Westamerica Bancorporation managed to grow EPS by 16% per year, over three years. That's a good rate of growth, if it can be sustained.
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 Westamerica Bancorporation's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Westamerica Bancorporation maintained stable EBIT margins over the last year, all while growing revenue 5.2% to US$211m. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.
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 Westamerica Bancorporation's future profits.
Are Westamerica Bancorporation 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 Westamerica Bancorporation shares worth a considerable sum. With a whopping US$67m worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to make me think that management will be very focussed on long term growth.
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 between US$1.0b and US$3.2b, like Westamerica Bancorporation, the median CEO pay is around US$3.8m.
The Westamerica Bancorporation CEO received total compensation of just US$699k in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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 good governance, more generally.
Is Westamerica Bancorporation Worth Keeping An Eye On?
As I already mentioned, Westamerica Bancorporation is a growing business, which is what I like to see. Earnings growth might be the main game for Westamerica Bancorporation, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. We don't want to rain on the parade too much, but we did also find 2 warning signs for Westamerica Bancorporation (1 is significant!) that you need to be mindful of.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
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 Westamerica Bancorporation?
Price-To-Earnings ratio (12.5x) is below the US market (15.5x)
Earnings are forecast to grow 9.06% per year
Earnings grew by 41.1% over the past year
No risks detected for WABC from our risks checks.
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. 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.
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Westamerica Bancorporation operates as a bank holding company for the Westamerica Bank that provides various banking products and services to individual and commercial customers.
Outstanding track record with flawless balance sheet and pays a dividend.