Should You Be Adding Mercantile Bank (NASDAQ:MBWM) To Your Watchlist Today?
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Mercantile Bank (NASDAQ:MBWM). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Mercantile Bank with the means to add long-term value to shareholders.
See our latest analysis for Mercantile Bank
Mercantile Bank's Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Over the last three years, Mercantile Bank has grown EPS by 14% per year. That's a pretty good rate, if the company can sustain it.
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. Our analysis has highlighted that Mercantile Bank's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. EBIT margins for Mercantile Bank remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 9.0% to US$198m. 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.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Mercantile Bank?
Are Mercantile Bank Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
It's worth noting that there was some insider selling of Mercantile Bank shares last year, worth US$86k. But that doesn't beat the large US$160k share acquisition by Independent Director David Ramaker. Overall, that is something good to take away.
The good news, alongside the insider buying, for Mercantile Bank bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$39m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 8.4% of the company, demonstrating a degree of high-level alignment with shareholders.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because on our analysis the CEO, Bob Kaminski, is paid less than the median for similar sized companies. For companies with market capitalisations between US$200m and US$800m, like Mercantile Bank, the median CEO pay is around US$2.6m.
Mercantile Bank's CEO took home a total compensation package of US$1.2m in the year prior to December 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does Mercantile Bank Deserve A Spot On Your Watchlist?
One important encouraging feature of Mercantile Bank is that it is growing profits. In addition, insiders have been busy adding to their sizeable holdings in the company. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. Still, you should learn about the 2 warning signs we've spotted with Mercantile Bank (including 1 which doesn't sit too well with us).
Keen growth investors love to see insider buying. Thankfully, Mercantile Bank 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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