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.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Westamerica Bancorporation (NASDAQ:WABC). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Fast Is Westamerica Bancorporation 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. Over the last three years, Westamerica Bancorporation has grown EPS by 16% per year. That's a pretty good rate, if the company can sustain it.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. 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. While we note Westamerica Bancorporation's EBIT margins were flat over the last year, revenue grew by a solid 8.9% to US$218m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Westamerica Bancorporation's forecast 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. So it is good to see that Westamerica Bancorporation insiders have a significant amount of capital invested in the stock. Given insiders own a small fortune of shares, currently valued at US$60m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations between US$1.0b and US$3.2b, like Westamerica Bancorporation, the median CEO pay is around US$3.5m.
The Westamerica Bancorporation CEO received total compensation of just US$699k in the year to . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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 a culture of integrity, in a broader sense.
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. The fact that EPS is growing is a genuine positive for Westamerica Bancorporation, but the pretty picture gets better than that. 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 1 warning sign for Westamerica Bancorporation that you need to be mindful of.
Although Westamerica Bancorporation 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.
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. 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.
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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.