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. 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 Evans Bancorp (NYSEMKT:EVBN). 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. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Evans Bancorp’s Earnings Per Share Are Growing.
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. Impressively, Evans Bancorp has grown EPS by 22% per year, compound, in the last three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.
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. I note that Evans Bancorp’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Evans Bancorp maintained stable EBIT margins over the last year, all while growing revenue 17% to US$60m. That’s a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
Fortunately, we’ve got access to analyst forecasts of Evans Bancorp’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Evans Bancorp Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. 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.
Over the last 12 months Evans Bancorp insiders spent US$110k more buying shares than they received from selling them. On balance, that’s a good sign. Zooming in, we can see that the biggest insider purchase was by Chairman of the Board Lee Wortham for US$93k worth of shares, at about US$33.35 per share.
Does Evans Bancorp Deserve A Spot On Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about Evans Bancorp’s strong EPS growth. Not only is that growth rate rather juicy, but the insider buying makes my mouth water. To put it succinctly; Evans Bancorp is a strong candidate for your watchlist. If you think Evans Bancorp 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.
As a growth investor I do like to see insider buying. But Evans 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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.