If You Like EPS Growth Then Check Out LCNB (NASDAQ:LCNB) Before It's Too Late
Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
In contrast to all that, I prefer to spend time on companies like LCNB (NASDAQ:LCNB), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
See our latest analysis for LCNB
How Fast Is LCNB 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. Over the last three years, LCNB has grown EPS by 8.2% per year. That's a good rate of growth, if it can be sustained.
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. I note that LCNB'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 LCNB's EBIT margins were flat over the last year, revenue grew by a solid 5.8% to US$71m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
LCNB isn't a huge company, given its market capitalization of US$225m. That makes it extra important to check on its balance sheet strength.
Are LCNB 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 LCNB insiders have a significant amount of capital invested in the stock. To be specific, they have US$15m worth of shares. That's a lot of money, and no small incentive to work hard. Those holdings account for over 6.7% of the company; visible skin in the game.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between US$100m and US$400m, like LCNB, the median CEO pay is around US$1.0m.
LCNB offered total compensation worth US$772k to its CEO in the year to . 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 LCNB Deserve A Spot On Your Watchlist?
One important encouraging feature of LCNB is that it is growing profits. Earnings growth might be the main game for LCNB, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. It is worth noting though that we have found 2 warning signs for LCNB (1 is potentially serious!) that you need to take into consideration.
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.
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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