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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. And in . found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
So if you're like me, you might be more interested in profitable, growing companies, like Hawthorn Bancshares (NASDAQ:HWBK). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Quickly Is Hawthorn Bancshares Increasing Earnings Per Share?
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). That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, Hawthorn Bancshares's EPS has grown 17% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
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. I note that Hawthorn Bancshares'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 Hawthorn Bancshares's EBIT margins were flat over the last year, revenue grew by a solid 10% to US$56m. 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.
Since Hawthorn Bancshares is no giant, with a market capitalization of US$154m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Hawthorn Bancshares 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.
Not only did Hawthorn Bancshares insiders refrain from selling stock during the year, but they also spent US$153k buying it. That puts the company in a nice light, as it makes me think its leaders are feeling confident. We also note that it was the Director, Gus Wetzel, who made the biggest single acquisition, paying US$23k for shares at about US$23.31 each.
I do like that insiders have been buying shares in Hawthorn Bancshares, but there is more evidence of shareholder friendly management. I refer to the very reasonable level of CEO pay. For companies with market capitalizations between US$100m and US$400m, like Hawthorn Bancshares, the median CEO pay is around US$1.1m.
Hawthorn Bancshares offered total compensation worth US$646k 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. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Does Hawthorn Bancshares Deserve A Spot On Your Watchlist?
For growth investors like me, Hawthorn Bancshares's raw rate of earnings growth is a beacon in the night. But wait, it gets better. We have seen insider buying and the executive pay seems on the modest side of things. The message I'd take from this quick rundown is that, yes, this stock is worth investigating further. Now, you could try to make up your mind on Hawthorn Bancshares by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
As a growth investor I do like to see insider buying. But Hawthorn Bancshares 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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