- Oops!Something went wrong.Please try again later.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
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. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
So if you're like me, you might be more interested in profitable, growing companies, like ConnectOne Bancorp (NASDAQ:CNOB). 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.
ConnectOne Bancorp's Earnings Per Share Are 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). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. ConnectOne Bancorp managed to grow EPS by 14% 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 ConnectOne 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 ConnectOne Bancorp's EBIT margins were flat over the last year, revenue grew by a solid 21% to US$162m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of ConnectOne Bancorp's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are ConnectOne Bancorp 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 ConnectOne Bancorp insiders have a significant amount of capital invested in the stock. With a whopping US$99m worth of shares as a group, insiders have plenty riding on the company's success. That holding amounts to 13% of the stock on issue, thus making insiders influential, and aligned, owners of the business.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations between US$400m and US$1.6b, like ConnectOne Bancorp, the median CEO pay is around US$2.7m.
The ConnectOne Bancorp CEO received US$2.1m in compensation for the year ending December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. 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 ConnectOne Bancorp Deserve A Spot On Your Watchlist?
As I already mentioned, ConnectOne Bancorp is a growing business, which is what I like to see. The fact that EPS is growing is a genuine positive for ConnectOne Bancorp, but the pretty picture gets better than that. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. Of course, just because ConnectOne Bancorp is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.