Live Oak Bancshares (NYSE:LOB) Ticks All The Boxes When It Comes To Earnings Growth

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 currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Live Oak Bancshares (NYSE:LOB). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for Live Oak Bancshares

Live Oak Bancshares' Improving Profits

Live Oak Bancshares has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. Live Oak Bancshares' EPS has risen over the last 12 months, growing from US$3.90 to US$4.65. That's a 19% gain; respectable growth in the broader scheme of things.

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. It's noted that Live Oak Bancshares' revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Live Oak Bancshares maintained stable EBIT margins over the last year, all while growing revenue 36% to US$539m. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. 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 Live Oak Bancshares' future profits.

Are Live Oak Bancshares Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We do note that, in the last year, insiders sold US$173k worth of shares. But that's far less than the US$1.5m insiders spent purchasing stock. This bodes well for Live Oak Bancshares as it highlights the fact that those who are important to the company having a lot of faith in its future. Zooming in, we can see that the biggest insider purchase was by Vice Chairman & Executive VP William Williams for US$1.0m worth of shares, at about US$64.46 per share.

Along with the insider buying, another encouraging sign for Live Oak Bancshares is that insiders, as a group, have a considerable shareholding. Notably, they have an enviable stake in the company, worth US$349m. That equates to 25% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.

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. The cherry on top is that the CEO, Chip Mahan is paid comparatively modestly to CEOs at similar sized companies. The median total compensation for CEOs of companies similar in size to Live Oak Bancshares, with market caps between US$1.0b and US$3.2b, is around US$5.5m.

The Live Oak Bancshares CEO received total compensation of just US$884k in the year to December 2021. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Live Oak Bancshares Worth Keeping An Eye On?

One important encouraging feature of Live Oak Bancshares 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 your watchlist - and arguably a research priority. Before you take the next step you should know about the 1 warning sign for Live Oak Bancshares that we have uncovered.

Keen growth investors love to see insider buying. Thankfully, Live Oak Bancshares isn't the only one. You can see a 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.