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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Lake Shore Bancorp (NASDAQ:LSBK). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
How Fast Is Lake Shore Bancorp Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Lake Shore Bancorp managed to grow EPS by 12% per year, over three years. That growth rate is fairly good, assuming the company can keep it up.
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 Lake Shore Bancorp'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 Lake Shore Bancorp's EBIT margins were flat over the last year, revenue grew by a solid 3.1% to US$21m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
Lake Shore Bancorp isn't a huge company, given its market capitalization of US$91m. That makes it extra important to check on its balance sheet strength.
Are Lake Shore Bancorp Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
Insiders both bought and sold Lake Shore Bancorp shares in the last year, but the good news is they spent US$21k more buying than they netted selling. So, on balance, the insider transactions are mildly encouraging. It is also worth noting that it was Independent Director John McGrath who made the biggest single purchase, worth US$11k, paying US$11.30 per share.
Is Lake Shore Bancorp Worth Keeping An Eye On?
One positive for Lake Shore Bancorp is that it is growing EPS. That's nice to see. While some companies are struggling to grow EPS, Lake Shore Bancorp seems free from that morose affliction. The gravy on the mushroom pie is the insider buying, which has me tasting potential opportunity; one for the watchlist, I'd posit. Before you take the next step you should know about the 2 warning signs for Lake Shore Bancorp that we have uncovered.
The good news is that Lake Shore Bancorp is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
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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