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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.
In contrast to all that, I prefer to spend time on companies like Sierra Bancorp (NASDAQ:BSRR), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Sierra Bancorp Growing?
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. Over the last three years, Sierra Bancorp has grown EPS by 15% per year. That's a pretty good rate, if the company can sustain it.
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 Sierra 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. Sierra Bancorp maintained stable EBIT margins over the last year, all while growing revenue 9.4% to US$112m. 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.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Sierra Bancorp?
Are Sierra 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
We do note that, in the last year, insiders sold -US$221.4k worth of shares. But that's far less than the US$1.1m insiders spend purchasing stock. This makes me even more interested in Sierra Bancorp because it suggests that those who understand the company best, are optimistic. We also note that it was the Executive VP & Chief Banking Officer, Michael Olague, who made the biggest single acquisition, paying US$403k for shares at about US$26.89 each.
Along with the insider buying, another encouraging sign for Sierra Bancorp is that insiders, as a group, have a considerable shareholding. To be specific, they have US$35m worth of shares. That's a lot of money, and no small incentive to work hard. That amounts to 8.4% of the company, demonstrating a degree of high-level alignment with shareholders.
While insiders are apparently happy to hold and accumulate shares, that is just part of the pretty picture. The cherry on top is that the CEO, Kevin McPhaill is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Sierra Bancorp with market caps between US$200m and US$800m is about US$1.7m.
The Sierra Bancorp CEO received US$1m 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. It can also be a sign of good governance, more generally.
Should You Add Sierra Bancorp To Your Watchlist?
One positive for Sierra Bancorp is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for my watchlist - and arguably a research priority. Of course, just because Sierra Bancorp is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Sierra Bancorp, you'll probably love this free list of growing companies that insiders are buying.
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 firstname.lastname@example.org. 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.