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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
So if you're like me, you might be more interested in profitable, growing companies, like Allegiance Bancshares (NASDAQ:ABTX). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
Allegiance Bancshares's Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Allegiance Bancshares grew its EPS by 15% per year. That's a pretty good rate, if the company can sustain it.
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. Not all of Allegiance Bancshares'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 Allegiance Bancshares's EBIT margins were flat over the last year, revenue grew by a solid 61% to US$170m. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Allegiance Bancshares's forecast profits?
Are Allegiance Bancshares Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Allegiance Bancshares insiders have a significant amount of capital invested in the stock. With a whopping US$52m worth of shares as a group, insiders have plenty riding on the company's success. That's certainly enough to make me think that management will be very focussed on long term growth.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between US$400m and US$1.6b, like Allegiance Bancshares, the median CEO pay is around US$2.7m.
The Allegiance Bancshares CEO received total compensation of just US$521k in the year to December 2018. That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. 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.
Is Allegiance Bancshares Worth Keeping An Eye On?
One important encouraging feature of Allegiance Bancshares is that it is growing profits. Earnings growth might be the main game for Allegiance Bancshares, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Allegiance Bancshares.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies 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
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