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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
So if you're like me, you might be more interested in profitable, growing companies, like Bogota Financial (NASDAQ:BSBK). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. 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.
Bogota Financial's Improving Profits
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. You can imagine, then, that it almost knocked my socks off when I realized that Bogota Financial grew its EPS from US$0.14 to US$0.46, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?
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 Bogota Financial'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 Bogota Financial's EBIT margins were flat over the last year, revenue grew by a solid 39% to US$19m. 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.
Since Bogota Financial is no giant, with a market capitalization of US$144m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Bogota Financial 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 note that Bogota Financial insiders spent US$73k on stock, over the last year; in contrast, we didn't see any selling. That puts the company in a nice light, as it makes me think its leaders are feeling confident. Zooming in, we can see that the biggest insider purchase was by Independent Director John Masterson for US$34k worth of shares, at about US$10.17 per share.
Should You Add Bogota Financial To Your Watchlist?
Bogota Financial's earnings have taken off like any random crypto-currency did, back in 2017. 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. If that's the case, you may regret neglecting to put Bogota Financial on your watchlist. We should say that we've discovered 3 warning signs for Bogota Financial (1 is a bit unpleasant!) that you should be aware of before investing here.
The good news is that Bogota Financial 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.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.