It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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 Columbia Banking System (NASDAQ:COLB). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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 Columbia Banking System Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Columbia Banking System managed to grow EPS by 12% per year, over three years. That's a good rate of growth, if it can be sustained.
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 Columbia Banking System'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 Columbia Banking System's EBIT margins were flat over the last year, revenue grew by a solid 5.1% to US$573m. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. 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 Columbia Banking System?
Are Columbia Banking System Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Over the last 12 months Columbia Banking System insiders spent US$95k 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. We also note that it was the Independent Director, Thomas Hulbert, who made the biggest single acquisition, paying US$111k for shares at about US$23.09 each.
The good news, alongside the insider buying, for Columbia Banking System bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$18m worth of its stock. That's a lot of money, and no small incentive to work hard. Even though that's only about 0.6% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
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, Clint Stein, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like Columbia Banking System with market caps between US$2.0b and US$6.4b is about US$5.3m.
Columbia Banking System offered total compensation worth US$3.6m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.
Should You Add Columbia Banking System To Your Watchlist?
As I already mentioned, Columbia Banking System is a growing business, which is what I like 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. We don't want to rain on the parade too much, but we did also find 2 warning signs for Columbia Banking System (1 can't be ignored!) that you need to be mindful of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Columbia Banking System, 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.
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. 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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