Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in West Bancorporation (NASDAQ:WTBA). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
West Bancorporation's Earnings Per Share Are Growing.
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That makes EPS growth an attractive quality for any company. We can see that in the last three years West Bancorporation grew its EPS by 12% per year. That's a pretty good rate, if the company can sustain it.
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). Not all of West Bancorporation's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. West Bancorporation maintained stable EBIT margins over the last year, all while growing revenue 8.4% to US$80m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
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 West Bancorporation's balance sheet strength, before getting too excited.
Are West Bancorporation Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
It's good to see West Bancorporation insiders walking the walk, by spending US$714k on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. Zooming in, we can see that the biggest insider purchase was by Independent Director George Milligan for US$104k worth of shares, at about US$20.82 per share.
Along with the insider buying, another encouraging sign for West Bancorporation is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$14m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 3.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Dave Nelson, is paid less than the median for similar sized companies. For companies with market capitalizations between US$200m and US$800m, like West Bancorporation, the median CEO pay is around US$1.5m.
West Bancorporation offered total compensation worth US$975k to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. 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.
Does West Bancorporation Deserve A Spot On Your Watchlist?
One important encouraging feature of West Bancorporation is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. If you think West Bancorporation might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
The good news is that West Bancorporation is not the only growth stock with insider buying. Here's a list of them... 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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