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 Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Peoples Bancorp of North Carolina (NASDAQ:PEBK). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Peoples Bancorp of North Carolina's Earnings Per Share Are Growing.
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. Peoples Bancorp of North Carolina managed to grow EPS by 16% per year, over three years. That's a good rate of growth, if it can be sustained.
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 Peoples Bancorp of North Carolina's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. Peoples Bancorp of North Carolina maintained stable EBIT margins over the last year, all while growing revenue 7.1% to US$63m. That's progress.
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.
Since Peoples Bancorp of North Carolina is no giant, with a market capitalization of US$167m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Peoples Bancorp of North Carolina Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Peoples Bancorp of North Carolina insiders have a significant amount of capital invested in the stock. To be specific, they have US$34m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 20% 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 Peoples Bancorp of North Carolina, the median CEO pay is around US$1.1m.
The Peoples Bancorp of North Carolina CEO received total compensation of just US$517k in the year to December 2018. That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. 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. I'd also argue reasonable pay levels attest to good decision making more generally.
Should You Add Peoples Bancorp of North Carolina To Your Watchlist?
One important encouraging feature of Peoples Bancorp of North Carolina is that it is growing profits. The fact that EPS is growing is a genuine positive for Peoples Bancorp of North Carolina, but the pretty picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. If you think Peoples Bancorp of North Carolina might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
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
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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