Should You Be Adding Evans Bancorp (NYSEMKT:EVBN) To Your Watchlist Today?
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 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.
So if you're like me, you might be more interested in profitable, growing 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. 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 Evans Bancorp
How Quickly Is Evans Bancorp Increasing Earnings Per Share?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its 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, Evans Bancorp's EPS has grown 24% 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.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. 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. While we note Evans Bancorp's EBIT margins were flat over the last year, revenue grew by a solid 16% to US$64m. That's a real positive.
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.
Since Evans Bancorp is no giant, with a market capitalization of US$183m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Evans 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. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. 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$97k more buying shares than they received from selling them. Although I don't particularly like to see selling, the fact that they put more capital in, than they extracted, is a positive in my mind. It is also worth noting that it was Chairman of the Board Lee Wortham who made the biggest single purchase, worth US$93k, paying US$33.35 per share.
Should You Add Evans Bancorp To 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. 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 Evans Bancorp. You might benefit from giving it a glance today.
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 editorial-team@simplywallst.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.
