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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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Magyar Bancorp (NASDAQ:MGYR). 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. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
How Fast Is Magyar 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). That means EPS growth is considered a real positive by most successful long-term investors. Who among us would not applaud Magyar Bancorp's stratospheric annual EPS growth of 41%, compound, over the last three years? Growth that fast may well be fleeting, but like a lotus blooming from a murky pond, it sparks joy for the wary stock pickers.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of Magyar 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. Magyar Bancorp maintained stable EBIT margins over the last year, all while growing revenue 15% to US$25m. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
Since Magyar Bancorp is no giant, with a market capitalization of US$75m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Magyar Bancorp 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
The good news for Magyar Bancorp shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Senior VP & Chief Lending Officer Peter Brown bought US$21k worth of shares at an average price of around US$8.19.
Does Magyar Bancorp Deserve A Spot On Your Watchlist?
Magyar Bancorp's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. If you're like me, you'll find it hard to ignore that sort of explosive EPS growth. And indeed, it could be a sign that the business is at an inflection point. For me, this situation certainly piques my interest. It is worth noting though that we have found 1 warning sign for Magyar Bancorp that you need to take into consideration.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Magyar 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.
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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