Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Customers Bancorp (NYSE:CUBI). 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.
Customers Bancorp's Improving Profits
In the last three years Customers Bancorp's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like the last firework on New Year's Eve accelerating into the sky, Customers Bancorp's EPS shot from US$3.11 to US$8.77, over the last year. You don't see 182% year-on-year growth like that, very often. That could be a sign that the business has reached a true inflection point.
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 Customers Bancorp'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 Customers Bancorp's EBIT margins were flat over the last year, revenue grew by a solid 102% to US$719m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. 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 Customers Bancorp?
Are Customers Bancorp 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 Customers Bancorp insiders have a significant amount of capital invested in the stock. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$203m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Customers Bancorp with market caps between US$1.0b and US$3.2b is about US$3.6m.
Customers Bancorp offered total compensation worth US$2.3m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. 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 Customers Bancorp To Your Watchlist?
Customers Bancorp's earnings have taken off like any random crypto-currency did, back in 2017. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The strong EPS improvement suggests the businesses is humming along. Big growth can make big winners, so I do think Customers Bancorp is worth considering carefully. Even so, be aware that Customers Bancorp is showing 4 warning signs in our investment analysis , and 1 of those shouldn't be ignored...
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access 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.
Customers Bancorp, Inc. operates as the bank holding company for Customers Bank that provides financial products and services to individual consumers, and small and middle market businesses.
Flawless balance sheet and undervalued.