Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Bank of Commerce Holdings (NASDAQ:BOCH). 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.
How Quickly Is Bank of Commerce Holdings Increasing Earnings Per Share?
As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, Bank of Commerce Holdings's EPS has grown 36% each year, compound, over 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. Not all of Bank of Commerce Holdings'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 Bank of Commerce Holdings's EBIT margins were flat over the last year, revenue grew by a solid 15% to US$57m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
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 Bank of Commerce Holdings's future profits.
Are Bank of Commerce Holdings Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. 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.
It's good to see Bank of Commerce Holdings insiders walking the walk, by spending US$383k on shares in just twelve months. When you contrast that with the complete lack of sales, it's easy for shareholders to brim with joyful expectancy. We also note that it was the Chairman of the Board, Lyle Tullis, who made the biggest single acquisition, paying US$55k for shares at about US$10.97 each.
On top of the insider buying, it's good to see that Bank of Commerce Holdings insiders have a valuable investment in the business. Indeed, they hold US$13m worth of its stock. That's a lot of money, and no small incentive to work hard. Those holdings account for over 6.5% of the company; visible skin in the game.
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, Randy Eslick, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Bank of Commerce Holdings with market caps between US$100m and US$400m is about US$1.1m.
The Bank of Commerce Holdings CEO received US$895k in compensation for the year ending December 2018. That comes in below the average for similar sized companies, and seems pretty reasonable to me. 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. I'd also argue reasonable pay levels attest to good decision making more generally.
Should You Add Bank of Commerce Holdings To Your Watchlist?
For growth investors like me, Bank of Commerce Holdings's raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant stake in the company and have been buying more shares. So I do think this is one stock worth watching. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Bank of Commerce Holdings. You might benefit from giving it a glance today.
As a growth investor I do like to see insider buying. But Bank of Commerce Holdings 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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