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.
In contrast to all that, I prefer to spend time on companies like Cullen/Frost Bankers (NYSE:CFR), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business than can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
Cullen/Frost Bankers's Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Impressively, Cullen/Frost Bankers has grown EPS by 19% per year, compound, in the last 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 Cullen/Frost Bankers'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 Cullen/Frost Bankers's EBIT margins were flat over the last year, revenue grew by a solid 8.2% to US$1.3b. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Cullen/Frost Bankers EPS 100% free.
Are Cullen/Frost Bankers Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. 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.
We do note that, in the last year, insiders sold -US$140.7k worth of shares. But that's far less than the US$8.2m insiders spend purchasing stock. I find this encouraging because it suggests they are optimistic about the Cullen/Frost Bankers's future. Zooming in, we can see that the biggest insider purchase was by Director Carlos Alvarez for US$5.1m worth of shares, at about US$93.86 per share.
On top of the insider buying, it's good to see that Cullen/Frost Bankers insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$233m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Phil Green is paid comparatively modestly to CEOs at similar sized companies. I discovered that the median total compensation for the CEOs of companies like Cullen/Frost Bankers with market caps between US$4.0b and US$12b is about US$6.8m.
Cullen/Frost Bankers offered total compensation worth US$4.6m to its CEO in the year to December 2018. 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. It can also be a sign of a culture of integrity, in a broader sense.
Does Cullen/Frost Bankers Deserve A Spot On Your Watchlist?
You can't deny that Cullen/Frost Bankers has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. If you think Cullen/Frost Bankers might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
As a growth investor I do like to see insider buying. But Cullen/Frost Bankers 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 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.