Here's Why We Think Central Valley Community Bancorp (NASDAQ:CVCY) Might Deserve Your Attention Today
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Central Valley Community Bancorp (NASDAQ:CVCY). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
See our latest analysis for Central Valley Community Bancorp
How Fast Is Central Valley Community Bancorp Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Central Valley Community Bancorp has grown EPS by 18% per year, compound, in the last 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 Central Valley Community Bancorp's 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. EBIT margins for Central Valley Community Bancorp remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 7.1% to US$89m. 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.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Central Valley Community Bancorp.
Are Central Valley Community Bancorp Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Any way you look at it Central Valley Community Bancorp shareholders can gain quiet confidence from the fact that insiders shelled out US$511k to buy stock, over the last year. This, combined with the lack of sales from insiders, should be a great signal for shareholders in what's to come. It is also worth noting that it was Independent Director Louis McMurray who made the biggest single purchase, worth US$154k, paying US$15.51 per share.
The good news, alongside the insider buying, for Central Valley Community Bancorp bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have US$44m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 17% 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. The cherry on top is that the CEO, James Kim is paid comparatively modestly to CEOs at similar sized companies. The median total compensation for CEOs of companies similar in size to Central Valley Community Bancorp, with market caps between US$100m and US$400m, is around US$1.5m.
The Central Valley Community Bancorp CEO received US$863k in compensation for the year ending December 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. 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. It can also be a sign of a culture of integrity, in a broader sense.
Does Central Valley Community Bancorp Deserve A Spot On Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Central Valley Community Bancorp's strong EPS growth. Furthermore, company insiders have been adding to their significant stake in the company. So it's fair to say that this stock may well deserve a spot on your watchlist. You still need to take note of risks, for example - Central Valley Community Bancorp has 1 warning sign we think you should be aware of.
The good news is that Central Valley Community Bancorp is not the only growth stock with insider buying. Here's a list of growth-focused companies in the US 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.
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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.
