Is Now The Time To Put New York Community Bancorp (NYSE:NYCB) On Your Watchlist?

By
Simply Wall St
Published
May 28, 2021
NYSE:NYCB
Source: Shutterstock

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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like New York Community Bancorp (NYSE:NYCB). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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.

See our latest analysis for New York Community Bancorp

How Quickly Is New York Community Bancorp Increasing Earnings Per Share?

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. Over the last three years, New York Community Bancorp has grown EPS by 8.1% per year. That's a good rate of growth, if it can be sustained.

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 New York Community Bancorp'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. New York Community Bancorp maintained stable EBIT margins over the last year, all while growing revenue 18% to US$1.2b. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
NYSE:NYCB Earnings and Revenue History May 29th 2021

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 New York Community Bancorp's future profits.

Are New York Community Bancorp Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

New York Community Bancorp top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the Independent Director, Ronald Rosenfeld, paid US$53k to buy shares at an average price of US$10.63.

The good news, alongside the insider buying, for New York Community Bancorp bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$186m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. That's because on our analysis the CEO, Tom Cangemi, is paid less than the median for similar sized companies. For companies with market capitalizations between US$4.0b and US$12b, like New York Community Bancorp, the median CEO pay is around US$6.6m.

The CEO of New York Community Bancorp only received US$2.7m in total compensation for the year ending . 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.

Does New York Community Bancorp Deserve A Spot On Your Watchlist?

One important encouraging feature of New York Community Bancorp is that it is growing profits. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. However, before you get too excited we've discovered 1 warning sign for New York Community Bancorp that you should be aware of.

As a growth investor I do like to see insider buying. But New York Community Bancorp 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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