Here's Why City Holding (NASDAQ:CHCO) Has Caught The Eye Of Investors
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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 City Holding (NASDAQ:CHCO). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide City Holding with the means to add long-term value to shareholders.
See our latest analysis for City Holding
How Quickly Is City Holding Increasing Earnings Per Share?
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) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, City Holding has grown EPS by 8.1% per year. That growth rate is fairly good, assuming the company can keep it up.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that City Holding's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While we note City Holding achieved similar EBIT margins to last year, revenue grew by a solid 10% to US$252m. That's encouraging news for the company!
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.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of City Holding's forecast profits?
Are City Holding Insiders Aligned With All Shareholders?
It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that City Holding insiders have a significant amount of capital invested in the stock. Indeed, they hold US$34m worth of its stock. That's a lot of money, and no small incentive to work hard. Even though that's only about 2.5% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations between US$1.0b and US$3.2b, like City Holding, the median CEO pay is around US$5.4m.
The City Holding CEO received total compensation of just US$1.5m in the year to December 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add City Holding To Your Watchlist?
One positive for City Holding is that it is growing EPS. That's nice to see. The growth of EPS may be the eye-catching headline for City Holding, but there's more to bring joy for shareholders. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Even so, be aware that City Holding is showing 1 warning sign in our investment analysis , you should know about...
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you 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.
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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