Here's Why We Think OFG Bancorp (NYSE:OFG) Is Well Worth Watching

By
Simply Wall St
Published
May 11, 2021
NYSE:OFG
Source: Shutterstock

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 OFG Bancorp (NYSE:OFG). 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.

See our latest analysis for OFG Bancorp

How Quickly Is OFG Bancorp Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, OFG Bancorp's EPS has grown 27% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of OFG 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. OFG Bancorp maintained stable EBIT margins over the last year, all while growing revenue 50% to US$466m. That's a real positive.

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.

earnings-and-revenue-history
NYSE:OFG Earnings and Revenue History May 11th 2021

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are OFG Bancorp 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.

While OFG Bancorp insiders did net -US$288k selling stock over the last year, they invested US$651k, a much higher figure. On balance, to me, this signals their optimism. It is also worth noting that it was Vice Chairman Jose Fernandez who made the biggest single purchase, worth US$259k, paying US$12.95 per share.

On top of the insider buying, it's good to see that OFG Bancorp insiders have a valuable investment in the business. To be specific, they have US$20m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 1.6% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

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, Jos Fernandez, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like OFG Bancorp with market caps between US$1.0b and US$3.2b is about US$3.7m.

The OFG Bancorp CEO received US$2.8m in compensation for the year ending . 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. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add OFG Bancorp To Your Watchlist?

For growth investors like me, OFG Bancorp's raw rate of earnings growth is a beacon in the night. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for OFG Bancorp that you should be aware of.

The good news is that OFG Bancorp 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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This article by Simply Wall St is general in nature. 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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