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 completely lacks a track record of revenue and profit. 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.
So if you're like me, you might be more interested in profitable, growing companies, like Stock Yards Bancorp (NASDAQ:SYBT). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
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How Quickly Is Stock Yards 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. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Stock Yards Bancorp has grown EPS by 14% per year. That growth rate is fairly good, assuming the company can keep it up.
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. Not all of Stock Yards 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. While we note Stock Yards Bancorp's EBIT margins were flat over the last year, revenue grew by a solid 12% to US$158m. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Stock Yards Bancorp.
Are Stock Yards Bancorp Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Stock Yards Bancorp insiders have a significant amount of capital invested in the stock. To be specific, they have US$46m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 5.8% of the company, demonstrating a degree of high-level alignment with shareholders.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between US$400m and US$1.6b, like Stock Yards Bancorp, the median CEO pay is around US$2.6m.
The Stock Yards Bancorp CEO received total compensation of just US$1.2m in the year to December 2018. That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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 good governance, more generally.
Should You Add Stock Yards Bancorp To Your Watchlist?
One important encouraging feature of Stock Yards Bancorp is that it is growing profits. Earnings growth might be the main game for Stock Yards Bancorp, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Now, you could try to make up your mind on Stock Yards Bancorp by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.