Should You Be Adding Preferred Bank (NASDAQ:PFBC) To Your Watchlist Today?
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Preferred Bank (NASDAQ:PFBC). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
View our latest analysis for Preferred Bank
How Fast Is Preferred Bank Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Preferred Bank has managed to grow EPS by 33% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
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. Our analysis has highlighted that Preferred 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. Preferred Bank maintained stable EBIT margins over the last year, all while growing revenue 18% to US$286m. 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.
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 Preferred Bank.
Are Preferred Bank Insiders Aligned With All Shareholders?
It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Preferred Bank followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. With a whopping US$80m worth of shares as a group, insiders have plenty riding on the company's success. Amounting to 8.2% of the outstanding shares, indicating that insiders are also significantly impacted by the decisions they make on the behalf of the business.
Should You Add Preferred Bank To Your Watchlist?
You can't deny that Preferred Bank has grown its earnings per share at a very impressive rate. That's attractive. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Preferred Bank's continuing strength. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. Before you take the next step you should know about the 2 warning signs for Preferred Bank (1 is potentially serious!) that we have uncovered.
Although Preferred Bank certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of companies that not only boast of strong growth but have also seen recent insider buying..
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.
