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 completely lacks a track record of revenue and profit. 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 Codorus Valley Bancorp (NASDAQ:CVLY). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Quickly Is Codorus Valley Bancorp Increasing Earnings Per Share?
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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Codorus Valley Bancorp managed to grow EPS by 12% per year, over three years. That's a good rate of growth, if it can be sustained.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of Codorus Valley Bancorp's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. It seems Codorus Valley Bancorp is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not bad, but it doesn't point to ongoing future growth, either.
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.
Codorus Valley Bancorp isn't a huge company, given its market capitalization of US$212m. That makes it extra important to check on its balance sheet strength.
Are Codorus Valley Bancorp Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Codorus Valley Bancorp insiders both bought and sold shares over the last twelve months, but they did end up spending US$29k more on stock than they received from selling it. When you weigh that up, it is a mild positive, indicating increased alignment between shareholders and management. It is also worth noting that it was Director Brian Brunner who made the biggest single purchase, worth US$85k, paying US$21.25 per share.
I do like that insiders have been buying shares in Codorus Valley Bancorp, but there is more evidence of shareholder friendly management. Specifically, the CEO is paid quite reasonably for a company of this size. I discovered that the median total compensation for the CEOs of companies like Codorus Valley Bancorp with market caps between US$100m and US$400m is about US$1.2m.
The Codorus Valley Bancorp CEO received US$732k in compensation for the year ending December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.
Does Codorus Valley Bancorp Deserve A Spot On Your Watchlist?
As I already mentioned, Codorus Valley Bancorp is a growing business, which is what I like to see. Like chocolate chips in vanilla ice cream, the insider buying, and modest CEO pay, make it better. The sum of all that, for me, points to a quality business, and a genuine prospect for further research. If you think Codorus Valley Bancorp 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.
The good news is that Codorus Valley Bancorp 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
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Thank you for reading.