The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Hawthorn Bancshares (NASDAQ:HWBK). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
Hawthorn Bancshares' Earnings Per Share Are Growing
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Shareholders will be happy to know that Hawthorn Bancshares' EPS has grown 22% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
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. Not all of Hawthorn Bancshares' revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. Hawthorn Bancshares maintained stable EBIT margins over the last year, all while growing revenue 12% to US$78m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
Since Hawthorn Bancshares is no giant, with a market capitalisation of US$176m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Hawthorn Bancshares Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
The good news for Hawthorn Bancshares shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Independent Director Frank Burkhead bought US$27k worth of shares at an average price of around US$25.91. It seems that at least one insider is prepared to show the market there is potential within Hawthorn Bancshares.
Along with the insider buying, another encouraging sign for Hawthorn Bancshares is that insiders, as a group, have a considerable shareholding. To be specific, they have US$20m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 11% of the shares on issue for the business, an appreciable amount considering the market cap.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because Hawthorn Bancshares' CEO, David Turner, is paid at a relatively modest level when compared to other CEOs for companies of this size. For companies with market capitalisations between US$100m and US$400m, like Hawthorn Bancshares, the median CEO pay is around US$1.8m.
The CEO of Hawthorn Bancshares only received US$735k in total compensation for the year ending December 2021. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is Hawthorn Bancshares Worth Keeping An Eye On?
You can't deny that Hawthorn Bancshares has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant piece of the pie when it comes to the company's stock, and one has been buying more. These things considered, this is one stock worth watching. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Hawthorn Bancshares is trading on a high P/E or a low P/E, relative to its industry.
The good news is that Hawthorn Bancshares 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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